Standing Committee D

[Mr. Eric Illsleyin the Chair]

Clause 727 ordered to stand part of the Bill.

Clause 728

Exclusion of unnecessary material

Question proposed, That the clause stand part ofthe Bill.

Jonathan Djanogly: Sometimes, unnecessary or wrong documents are sent to the registrar. As things stand, it can be virtually impossible to have the register amended, and companies are often told that a court order is necessary. Often in such cases, a document—say, a form—has been filled in wrongly. All that the person who filled it in wants to do is get it back, put it right and file it again. That must happen dozens of times every day, but the process is much too inflexible.
I note that the clause heading includes the words “unnecessary material”. Will that be interpreted as including documents that a filing company feels are unnecessary?

Paul Farrelly: Will the hon. Gentleman confirm my arithmetic? In Committee this afternoon, we have eight Labour Members while he is the sole representative of the Conservative Opposition.

Eric Illsley: Order. I do not think that we need to go down that line, given that at 4.30 pm the Committee was not even quorate.

Jonathan Djanogly: Thank you, Mr. Illsley. As I was saying, will the words “unnecessary material” be interpreted as including documents that the filing company, rather than just the registrar, believes are unnecessary?

Vera Baird: The clause provides for cases in which a delivered document contains unnecessary material for which there is no legal requirement. It is clearly sensible that the registrar should not be obliged to put such information on the register, so she can exclude it and treat it as having been delivered defectively under clause 725. She may then use the various procedures provided in the Bill for remedying the situation, for example—this is the key one—the informal correction procedure. She can also issue a notice to remedy the defective delivery.
The provision is intended to be broad enough to cover all the matters that the hon. Gentleman raised. It is a great advance and will be in everybody’s interests.

Jonathan Djanogly: I thank the Minister for that reply, but will she clarify whether the provision is to be used broadly and whether it will work both ways so that the documents covered are what not just the registrar, but a company, consider unnecessary?

Vera Baird: I think it will be for the registrar to decide whether material is unnecessary, using the criteria set out in subsection (2), which defines unnecessary material as that which
“is not needed to comply with an obligation under any enactment, and...not specifically authorised to be delivered to the registrar.”
It is within the ambit of the registrar to decide whether material comes within that definition.

Jonathan Djanogly: I take the Minister’s point that it is ultimately down to the registrar to decide, but the point that I am trying to make is that, in practice, a lot of companies will complete and send in wrong forms, and all they will want to do is get their forms back, fill them in properly and send them back. Will the registrar be broad minded in her use of the clause to facilitate companies changing their forms?

Vera Baird: The informal correction procedure will cover that. If there has been a mistake, the company and the registrar can telephone each other and put it right, whatever it is, but it more appropriately falls under clause 726. Informal contact is a great improvement.

Paul Farrelly: Will my hon. and learned Friend the Minister join me in welcoming a second Conservative Member to the Committee to join the nine Labour Members?

Vera Baird: A second Tory is welcome. It is nice to see him.

Shailesh Vara: I am grateful for that welcome. Forgive me,Mr. Illsley, but may I say to Labour Members that with their record in this Committee, they should enjoy the moment while they can?

Vera Baird: That is what is happening.

Question put and agreed to.

Clause 728 ordered to stand part of the Bill.

Clause 729 ordered to stand part of the Bill.

Clause 730

Public notice of receipt of certain documents

Jonathan Djanogly: I beg to move amendment No. 380, in clauseÂ 730,Â pageÂ 361,Â leave out line 23.

Eric Illsley: With this it will be convenient to discuss amendment No. 389, in clauseÂ 751,Â pageÂ 372,Â leave out line 41.

Jonathan Djanogly: The clause, which deals with the public notice of receipt of certain documents, replaces section 711 of the Companies Act 1985. I appreciate that some issues require publication, which is also provided for in subsection (1)(b), but may I probe the Minister and ask, further to the discussion that we had on this earlier today, why in the electronic age people should still have to publish in the Gazette?
There is a cost to Companies House and to the company in placing an advertisement, but it is unnecessary red tape, particularly as there could be a central website on which all such notices were published at what I expect would be a much lower cost.
I would like to know who reads the Gazette. Not many people, I imagine. In reality, it puts the public on notice only technically. Publishing an advertisement in the Gazette is not like publishing one in the Sundays.
On amendment No. 389, the Bill again requires in clause 751 that notice be given in the Gazette. Is that not expensive and does it not go unnoticed? Can we not move on to cheaper, more practical notice provisions? It would help to have an idea of the costs involved. The amendments are probing and aim to discover from the Minister how much Companies House and companies spend per year on advertising in the Gazette.

Vera Baird: Just so that I do not appear the slightest bit churlish, let me welcome the third and fourth Opposition Members to the Committee. We have nine Members on our side, but perhaps this running commentary ought to cease soon.
The cost of the Gazette is some £80,000 per annum. It lists well over 1 million transactions, or entries, and is a permanent record that libraries keep. I know that the hon. Gentleman in fact likes the Gazette. As was said earlier, there is no reason to do away with it. The registrar must give appropriate publicity on incorporation, and it is published in the London Gazette, Edinburgh Gazette or Belfast Gazette, depending on where the company is. The Gazette is well known and of long standing, and users are accustomed to referring to it for news of incorporations. Even I know that one can look in it.
There is no intention that the registrar will cease to publish in that way in the near future. It is possible that developments in electronic publishing over time will mean that alternative mechanisms become equally or more appropriate. As the hon. Gentleman knows, clause 769 makes such alternatives available.
Does anyone use the Gazette? I cannot tell the hon. Gentleman what the readership is and I do not know how we can pin it down. We would have to find out how many copies are purchased and then how many people, on average, read each issue. That is the sort of thing that one gets only from Bradshaw, so I do not know whether we can help further.
The point is that a lot of the existing obligations to give notice in the Gazette come from European Community law, and the facility to provide alternative means has been made available only recently. It is not clear to what extent our partners in other member states would be aware if we ceased to publish in that tried and tested way, so in due course we will look at alternatives. However, there is currently no intention of discontinuing publication in that way.

Nick Palmer: May I briefly indicate some sympathy with the Opposition on this point? In this day and age, it seems appropriate to move to electronic publication for easier access and reduced cost. I would not go as far as to vote for the amendment, and I do not think that the Opposition will press it anyway, but I want to flag that point up.

Jonathan Djanogly: It seems that the Gazette is going to get a reprieve this afternoon.
In this day and age, there must be a better alternative to what is in most practitioners’ minds a bore, to be frank. I shall leave my comments there, but I hope that the Government will perhaps put their mind to how that could be changed. I appreciate that the Bill provides for changes to be made in the use of the Gazette, if necessary. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 730 ordered to stand part of the Bill.

Clause 731

Documents subject to Directive disclosure requirements

Question proposed, That the clause stand part ofthe Bill.

Jonathan Djanogly: The clause deals with documents subject to the directive disclosure requirements and replaces section 711 of the 1985 Act. It continues to implement the first company law directive as amended by directive 2003/58/EC and lists the documents of which notice must be published in the Gazette. Will the Minister confirm that that list is identical to the current one?

Vera Baird: Sometimes, I could swear that the hon. Gentleman is reading my notes. The clause, which partly replaces section 711, lists the documents to which the directive disclosure requirements apply. It derives from Community legislation—principally, the first company law directive as amended by directive 2003/58/EC. So, there is little or no discretion about the content of the clause.
The clause is important for how it links in with other clauses, such as clause 730, which provides that the registrar must publish notice when issuing listed documents, and clause 721, which ensures that the listed document be capable of being sent in electronic form. From what I said in the first paragraph of my remarks, that seems to be continuity rather than change. I think that that answers the hon. Gentleman’s question.

Jonathan Djanogly: My question is indeed answered, and I can assure the Minister that I did not see her notes before the debate. Obviously, she is well advised and her advisers saw me coming. With that, I thank her.

Question put and agreed to.

Clause 731 ordered to stand part of the Bill.

Clause 732

Effect of failure to give public notice

Question proposed, That the clause stand part ofthe Bill.

Jonathan Djanogly: The clause deals with the effect of the failure to give public notice and replaces section 42 of the 1985 Act. It sets out how a company, in its dealings with third parties, may not rely on the consequences of certain events—those set out in subsection (2)—unless notice of the event has duly appeared in the Gazette or been published in some other way provided for in clause 769.
If the company shows the third party the documents related to the event, such as an amendment to the company’s articles, within the 15-day period set out in subsection (3), can the company rely on such disclosure having happened at that earlier stage?

Vera Baird: The clause replaces section 42 of the 1985 Act, setting out how a company in its dealings with third parties may not rely on the consequences of certain events, unless notice of the events has duly appeared in the Gazette or been published in some other way, as provided for in clause 769. Subsection (1) says:
“A company is not entitled to rely against other persons on the happening of any event to which this section applies unless...
(b) the company shows that the person concerned knew of the event at the material time.”
Therefore, actual notice seems to cover the situation.

Jonathan Djanogly: To clarify, would that apply if the notice was given before the 15th day?

Vera Baird: Yes.

Question put and agreed to.

Clause 732 ordered to stand part of the Bill.

Clause 733

The register

Jonathan Djanogly: I beg to move amendment No. 381, in clauseÂ 733,Â pageÂ 364,Â lineÂ 11,Â leave out from ‘from’ to ‘that’ in line 12 and insert ‘all documents’.
When talking about the register in the abstract, we need to keep it in mind that we are talking about a record of every filed document, which normally appears on a plastic fiche. Under subsection (3), after 1 January 2007, only the
“documents subject to the Directive disclosure requirements”
in clause 731 will need to be kept in electronic form. Surely it is not the intention to have half the company’s documents on the register in electronic form and the other half—or whatever the proportion might be—still on fiche. The amendment therefore states that all documents should be in electronic form.
While on the subject, will the Minister please advise the Committee how the preparations for the switch to electronic form are going? Are they being made within the budget and will they be made on time? Will searches of the records cost less as a result and will they be faster?

Vera Baird: The hon. Gentleman asks whether searches will be cheaper and faster, and whether preparations are on the way. The documents set out in clause 731 are those that are subject to various requirements under European Community law, one of which is that information derived from those documents should be kept in electronic form by the registrar. They are, on the whole, the more significant company documents. The obligation to keep the information electronically therefore ensures that the majority of key documents have to be kept in that way.
The hon. Gentleman’s amendment would extend the obligation to keep information electronically to all documents, not just the key ones. Electronic communications are an enormous benefit to users of Companies House services and Companies House itself. The registrar shares the Government’s desire to see the growth of that and is taking steps to ensure that electronic services are available wherever appropriate. The question is whether it should be obligatory to keep the information electronically or whether, where European law includes a discretion, we should maintain that discretion.
It is probable that over time the registrar will choose to keep all information electronically—I am told that we are not far from that position already—but there can be operational issues at the margin. Altogether, it is better to leave the registrar with some flexibility, just as we agree that companies should have flexibility in how they communicate with the registrar in the first place, which is almost bound to be faster and cheaper, but I do not know whether I can give the hon. Gentleman a more specific response to that point at present.
Companies House is in the middle of a significant programme to upgrade its facilities for receiving and storing information electronically. To the best of our understanding, the programme is going well. If the hon. Gentleman wants any more specifics on progress, we shall write to him about that, although the point on the process being cheaper and faster is bound to be correct. However, the flexibility is important, so I invite him to withdraw the amendment.

Jonathan Djanogly: I thank the Minister for her comprehensive response, although I would appreciate a note, so that we will know how the process is going. My understanding is that by 1 January 2007 people who want copies of a document might still have to get some of it on fiche and some of it electronically. The intention is that that should not happen, but it might. We hope that it does not, in so far as it would be terribly inconvenient. However, on the basis of what I have heard, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 733 ordered to stand part of the Bill.

Clause 734 ordered to stand part of the Bill.

Clause 735

Allocation of unique identifiers

Amendment made: No. 113, in clause Â 735, Â pageÂ 365, Â lineÂ 16, Â at end insert ‘or
(ba) is appointed as an authorised signatory of a company,’.—[Margaret Hodge.]

Question proposed,That the clause, as amended, stand part of the Bill.

Jonathan Djanogly: The clause deals with the allocation of unique identifiers, which is a new concept. The use of unique identifiers will be a great help in enhancing the security of the register and avoiding confusion, particularly where people have the same name. Will the Minister please take this opportunity to explain how the system is likely to work? In mechanical terms, what needs to be done to put it in place? When is that likely to happen? In debates on other amendments, I have asked her to explain the Government’s approach to dealing with fraud, so perhaps she will elaborate on how this system will be of benefit.

Vera Baird: I cannot, as the hon. Gentleman requests, set out in detail the mechanical processes that will bring the system to fruition. The clause obviously supports the provisions to allow directors’ home addresses to be kept off the public record. The unique identifier will also be useful in enabling searches to distinguish between different persons of the same name and in clearly identifying people whose addresses will not go forward. However, I shall have to write to the hon. Gentleman about the mechanics and the stage we are at.

Question put and agreed to.

Clause 735, as amended, ordered to stand part ofthe Bill.

Clause 736

Preservation of original documents

Jonathan Djanogly: I beg to move amendment No. 382, in clauseÂ 736,Â pageÂ 365,Â lineÂ 42,Â at end insert
‘provided that if the registrar has received a written request from the company for possession of such documents, then the registrar shall send such documents in hard copy form to the company.’.
The clause deals with the preservation of original documents. There might be situations in which companies wish to retain original resolutions and other documents that have been signed. They might not want the registrar to destroy those documents after three years, and the amendment would give them the opportunity to get the documents back.
The company’s reasons might be unofficial—perhaps it keeps its papers for historical record purposes—but has the Minister considered that there might be other reasons? For instance, if a company issues shares other than on a cash basis, Companies House will want to have the contract under which the shares were issued, with stamp duty on it, filed. The company may be required by law to keep that contract for more than three years. Has she considered that? Would Companies House not destroy such a contract?
The amendment is aimed at not making document release an onerous process for Companies House, in so far as it would be for the company to action the request.

Vera Baird: The amendment would be likely to impose a very onerous burden on Companies House, and its goal would be attainable only at significant cost. It is clearly sensible that Companies House should at some point be able to destroy the originals of documents that it receives. The information on the hard copy is translated into electronic form and made publicly accessible so that the importance of the hard-copy original disappears. One imagines that that basic proposition is accepted.
Companies House gets millions of documents a year, and an indefinite obligation to keep the originals would be unworkable. The amendment would enable companies, prior to the destruction of the originals, to request their return, but I do not know how many companies would want to make use of it. However, any well run company would surely have retained its own records as necessary, and the information in the documents would generally continue to be publicly accessible.
Where a company or an individual sends information to a public body, the onus is on the person supplying the information to keep a record if they think that they will need it—all the more so if they are under an obligation to keep it.
The costs and the burden imposed by the amendment would be significant. Although Companies House can, and generally does, organise and hold electronic information according to company, hard-copy documents are generally stored according to the nature of the document, which makes perfect sense from an archive point of view when the documents are translated into electronic information. However, it would make complying with request for the return of all original hard-copy documents relating to a specific company hugely labour intensive.
Obviously, Companies House would need to operate on a cost-recovery basis if it performed the service, and the charges would necessarily be high, so the amendment would be, if not completely impossible, not practical, very expensive and unnecessary, as the onus should surely remain on the company to keep all the records it needs to keep.

Jonathan Djanogly: I hear what the Minister says. I think that, in practice, the service would be used relatively rarely and that companies that wanted it would not have a problem meeting its cost. I agree that it makes sense to destroy originals that have passed the three-year mark. I just thought that the company should have the choice, if it so wished, to have access to the originals, but I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 736 ordered to stand part of the Bill.

Clauses 737 and 738 ordered to stand part of the Bill.

Clause 739

Right to copy of material on the register

Question proposed, That the clause stand part ofthe Bill.

Jonathan Djanogly: Are the fees for copies likely to be affected by these new provisions? In particular, will costs be reduced by the increased use of electronic filing and/or will electronic filing start-up costs be recouped from the fees paid for searches?

Vera Baird: The clause makes it clear that anyone is entitled to a copy of material on the register, so it is similar in purpose to the preceding clause, which we have just agreed to and which provides that any person can inspect the register.
A general principle of how Companies House is established is that it operates on a cost-recovery basis. It would therefore in any event expect to charge users of its services fees consistent with the costs of providing the relevant service.
In this instance, an explicit provision of European law governs the costs of providing copies, so the clause sets it out, for the avoidance of doubt, that the fee for a copy may not exceed the administrative cost of providing the service. If Companies House is to be able to recoup the administrative costs of providing the service, it is likely to have to recoup the costs of setting up the system, but in the longer term one might expect electronic communications to reduce transaction costs in any event.

Question put and agreed to.

Clause 739 ordered to stand part of the Bill.

Clause 740

Material not available for public inspection

Jonathan Djanogly: I beg to move amendment No. 383, in clause 740, page 367, line 46, at end insert—
‘(ja) any name or address of any member of the company (save for the subscribers);’.

Eric Illsley: With this it will be convenient to discuss the following amendments: No. 385, in clause 741, page 368, line 10, after ‘address’, insert ‘and name’.
No. 386, in clause 741, page 368, line 10, after ‘address’, insert ‘or all addresses’.
No. 384, in clause 741, page 368, line 13, at end insert
‘in addition to the company and the individual whose name and address is the subject of disclosure’.

Jonathan Djanogly: We debated at some length the question of access to the register of members and I highlighted the fact that clause 115 might be ineffectual in protecting shareholders if the company sent details of its shareholders’ names and addresses to Companies House with its annual return. I make the point now that whatever we say about access to members’ personal details, that should be a debate on the register of members in which we accept the need for a balance between access for valid reasons and security concerns, which will restrict access to some extent.
We see no need for such a debate in relation to the annual return or details held on file at Companies House, not least because the details of members do not reflect who is or is not a member of the company except on the date of the return, hence the reason for tabling our amendment, which simply says that any name or address of any member shall not be made available. That should be historical, and not just for future filings, to stop the problem that we have with directors’ old filings, which might mean that a person has to move home to make redundant the historical filed details.
If the Government are unwilling to accept amendment No. 383, we need to move on to making the less practical approach that they propose as watertight as possible. Two issues require amendment. The first relates to the fact that this provision applies only to addresses, not the names of shareholders. Do the Government intend to retain the provision that companies must include lists of their members with their annual returns? We think it will not offer enough protection. I also note that the clause seems towork only on a one-off basis: each shareholder will have to apply individually to have his or her address removed.
While I agree that there should be a provision for individual application to the registrar, in the example of GlaxoSmithKline, which would involve thousands of shareholders being approached, surely we need to provide for the company to have the means to ask for all shareholders collectively to be removed. We note that clause 741(2)(a) does not spell out who may make an application. We assume that both the company and an individual will be able to apply at the very least, and our amendment aims to clarify that.
On further reflection, we find the Government’s application here somewhat inconsistent. The basis of the system in clause 741 is to have an application made in relation to a single address, yet the system used in clause 115 for access to the members’ register is the opposite, with only the company, and not individuals as we wanted, being given the right to block access to all shareholders’ details.
Will the Minister please explain that difference of approach? To me, it smacks of rushed legislation and not putting things into context. The gaps and hoops that I have identified in relation to the clause somewhat undermine the Government’s announcements during consideration in the Lords that they would deal with this problem comprehensively. They are dealing with it, but not as effectively as we believe they should.

Vera Baird: I hope that I can give the hon. Gentleman a comprehensive answer. AmendmentNo. 383 would deprive the public of information about who owns any company. Members themselves and third parties often have a legitimate interest in being able to find out who a company’s members are. The advantage of that being held by the registrar is that it is not only available with minimal inconvenience and expense, either to searches or to the company itself, but readily available if the company itself is being obstructive.
In addition, the information can be checked without the company’s knowledge. That is very important when relations between company members and the directors are strained and company members need to be able to be in touch with each other, or if there is a concern about whether directors have been acting properly.
So, it seems imperative that that information should remain where it is for all those purposes. Although I am conscious of the fact that everyone has rehearsed and not accepted each other’s arguments on this issue already, I hope that the hon. Gentleman will none the less withdraw the amendment. It seems important that members’ names should be there for ordinary commercial purposes in the ordinary, proper democracy of companies, which he has on other occasions espoused and indeed championed.
Clause 741 provides for circumstances in which addresses held by Companies House might be made unavailable. That is in addition to the provision in clause 225 whereby directors’ home addresses will no longer be on the record and the provision in clause 260, which does not require public company secretaries to provide a home address in future. Amendment No. 385 would extend clause 741 so that the provisions for addresses held by Companies House being made unavailable for public inspection might be extended to names. That would take privacy too far.
The company law review argued that information on who controls or who can influence limited companies should be readily available, and we agree. It would not be right to provide for secrecy and anonymity in any such matter, whether it be the names of members or directors, or anyone else whose name is required. I well understand the hon. Gentleman’s concern and know that it has particular relevance to his constituency.

Paul Farrelly: I am not sure whether the Minister was here when I made extensive remarks on similar amendments that advocated this approach. I would like to repeat them now for the record. Such an approach would drive a coach and horses through effective corporate governance. It would be dangerous and tantamount, in determined hands, to a rogues’, crooks’ and fraudsters’ charter.

Vera Baird: I take my hon. Friend’s point. Although it is impossible not to understand the force behind the amendments, the matter has already been debated extensively and people have taken fairly rigid positions. I was not present for the whole debate on the topic, but my view is that a large number of the points that the hon. Member for Huntingdon (Mr. Djanogly) raised as problems that have befallen shareholders are those against which they could not be protected by secrecy. They were largely due to inadequacies in policing and therefore not related to the Bill. It is important to ensure that the democratic accountability of companies is retained.
Amendments No. 386 and 384 are more technical. The hon. Gentleman mentioned the matter of who can make an application, which clause 741 leaves open. That is deliberate—not all addresses should be treated in the same way. Take the address of a mortgagee. It may be useful to have a means to allow creditors to contact each other, but if amendment No. 384 were accepted companies could take their mortgagees’ addresses off the register without their consent. That would be utterly unsatisfactory and a real impediment to the smooth functioning of company commerce.
Amendment No. 386 is about drafting rather than policy. There is nothing to prevent the regulations from providing for a single application to cover multiple addresses. I hope that the hon. Gentleman finds that comprehensive enough and withdraws the amendment.

Jonathan Djanogly: Is the Minister therefore saying that either an individual or a company may make an application? That is one of my concerns.

Vera Baird: Yes. Clause 341 leaves open who may make an application, which means it is wide enough to permit a company or an individual to do so. I should add that we intend to use the power to make regulations regarding the annual return, which the hon. Gentleman raised, to ensure that addresses are not required for private company members or the vast majority of plc members.
I hope that that is sufficient to persuade the hon. Gentleman that he shot his bolt in our earlier discussion and that there is nothing new in the clause. It is overwhelmingly the case that information should be publicly available for the good company governance for which we all wish. I therefore hope that he will withdraw the amendment.

Quentin Davies: This is an important matter, not a technical one at all. There are many circumstances in which it is necessary for people to be able to communicate with the shareholders of a company. One obvious situation is that of somebody preparing a bid for a company who wishes to make an offer to its shareholders—perhaps an unfriendly one that would not be recommended by its directors.
Another example, which is very important in corporate governance, is that a shareholder might want to get together with other shareholders to form a minority, or even majority, shareholders’ group with a view to changing policy or the directors, or challenging resolutions that the directors put forward at an annual or extraordinary general meeting.
Such mechanisms are essential in any good system of corporate governance, and it would be a great mistake if the new company law that we are putting together precluded their use or placed undue obstacles in their way.
My hon. Friend the Member for Huntingdon is right to bring up a new issue. Since the House last debated company law, there has been the menace of animal rights activists threatening the shareholders of pharmaceutical or other biological industry companies. One can envisage circumstances in which not just those sectors would be targeted by some lunatic or terrorist organisation.
We must provide protections for citizens who happen to be shareholders of companies. I want to ensure that we get the balance and trade-off right, because I do not suppose that the House will have an opportunity to return to company law in general for another 20 or25 years. Some of us might not even be here when it does.
In that context, I want to ask the Government for an explanation. Subsection (5) states that the regulations “may provide” that if an address is not to be made available, a service address must be made available. It seems desirable that the regulations should make such provision so that if, for any reason, the addresses were not provided—I agree totally with my hon. Friend that there are circumstances in which the addresses should not be provided and in which we should allow individuals to apply not to have their addresses revealed or disclosed—a service address would be substituted so that people could receive communications such as those I have suggested or others of a fairly legitimate character.
Will the Minister assure us that when she writes that the regulations “may” provide, she intends that they will so provide? An alternative—I rather regret not having thought of it before as I am now unable to table an amendment—is providing that the company is obliged to communicate with or to pass on communications to shareholders, which is not ideal because it involves incurring some cost.
One way or another, we must resolve the contradiction between the need to establish rules to provide for good corporate governance and the needto provide physical protection for people who happen to be shareholders of controversial companies.

Paul Farrelly: Again, for the record, I do not think that the hon. Gentleman was here when I made an extensive contribution on other amendments tabled by Conservative Front Benchers. His remark, as a response to animal rights extremists, that any change in company law must be balanced and proportionate, not harmful to corporate governance and no encouragement to fraud or such behaviour is absolutely right.
Is the hon. Gentleman aware of the effect that some amendments tabled by Conservative Members would have had? For instance, he talks about bids. Making shareholding registers not available at Companies House would deter bids. In certain circumstances, some of the amendments would not have allowed minority shareholders to establish whether secret concert parties were running companies against their interests. Is he aware of that?

Quentin Davies: That is quite a long intervention to respond to. My hon. Friend the Member for Huntingdon has been incredibly conscientious and thorough in considering the Bill. I have been immensely impressed by his hard work in producing so many amendments, which have allowed some educated discussions on these subjects. He deserves the approbation and gratitude of the whole Committee for his work, which has inspired us to many thoughts and insights on company law that we would not otherwise have had, including in this example.

Paul Farrelly: Is that a yes or a no? Is the hon. Gentleman aware of the subject of those amendments?

Quentin Davies: In answer to the question whether I have read every amendment tabled by my hon. Friend the Member for Huntingdon, I hope that I have the reputation of being an honest man and I have some difficulty in saying an unambiguous yes.
I say to my hon. Friend that although I shall certainly vote for his amendment if he wishes to press it to a vote, as it is clearly necessary to provide some protection, I hope that he has in mind, or as part of his plan to amend the Bill, the need to provide, first, that shareholders can be communicated with and, secondly, that any company may not possibly ask, for quite the wrong reasons, for the addresses of all its shareholders to be removed from disclosure, as it might well be trying to block a bid, prevent other shareholders from communicating with each other or prevent the dissemination of views on the governance of the company that run counter to the policy of the board. That would be an appalling attack on shareholder democracy.

Vera Baird: May I take the opportunity to satisfy the hon. Gentleman about the provisions of subsection (5)(b)? I am sure he will accept that the proposal that the company should have a duty is much less satisfactory than ensuring that service addresses are available. Putting a duty on the company is very much a second best. I understand that the regulations will provide for current addresses and not historic ones. I hope that that is satisfactory. I am grateful to him for his examples of when communication between members is important.

Quentin Davies: I think that I am happy with what the Minister said, but is it definitely the intention, in so far as individuals have asked for their addresses not to be disclosed and in so far as the company has asked for addresses not to be disclosed, that the company will be obliged to pass on communications to the shareholder? Is my understanding right?

Vera Baird: No, I do not think so. The hon. Gentleman was keen that the regulations should provide that if an address was not to be made available, it had to be replaced by a service address. He commented on the fact that the regulations “may” provide, and asked me whether it was our intention that they would provide. The intention is that they would; it is not that an address cannot be made unavailable unless there is a service address. That principle is right for current addresses, but I am not sure what he means about the company having a further duty. If he sets that out more extensively, and if it still troubles him after my second attempt to reply, I am sure that I can get some assistance.

Quentin Davies: I am grateful to the Minister. She satisfies me entirely about current shareholders with current addresses. She assures the Committee—an assurance that the Committee accepts—that we can read the word “may” as “shall” for current shareholders with current addresses. However, the provision is not intended to govern a company’s activities and obligations only for the next month or two; it is doubtless intended to govern them for the next 25 years. It is important that the same mechanism should be applied to future shareholders, with future addresses. The Minister leaves me confused by saying that the regulations will not apply to future shareholders with future addresses, so how can we ensure that when, in future, addresses are not themselves directed as closed, there will nevertheless be a mechanism for communicating with the shareholders of the company?

Vera Baird: I did not say that the regulations would not provide for future addresses; I said that they would not apply for historic addresses. We start with addresses that are current when the legislation comes into force, and all current addresses thereafter will come under the provisions of clause 741(5)(b).

Quentin Davies: I am grateful to the Minister for that clarification. Perhaps I did not hear her correctly before. We are changing the law and going forward, and the provisions for withholding addresses will apply only to new addresses once the law comes into effect.
It has been a useful discussion. I hope that there is consensus.

Jonathan Djanogly: I can confirm to my hon. Friend that there is consensus, and I shall explain why. First, however, I shall deal with other points raised by the Minister.
I am grateful for the Minister’s clarification of who can apply for privacy, and that such removal could be done by groups rather than individually—I think that she said that the provision could be used either way. I did not raise the subject, but I was interested to hear the Minister say that she was concerned that my amendments could be used so that mortgagees could apply not to share their addresses. That is a concern of mine, too, but I understand from my correspondence with Lord Sainsbury that the Government propose to allow mortgagees to use agency addresses. The Minister might like to confirm that.
On amendment No. 383, it is important to say that we accept—my hon. Friend will be pleased to hear this—that members and others have a legitimate interest in accessing members’ details. We accept and applaud that. However, there are two ways in which to access those details: from the register of members or the details filed at Companies House.
Members’ details at Companies House are filed only once a year and so at any particular point could be wildly inaccurate and not relate in any way to who is a member of the company. It is simply a statement given at a point in time—when the annual return is filed—and is not a reflection of who is a member of the company. For instance, nine months after filing, the list of actual members would probably be wildly different from that in the Companies House details.
I agree with my hon. Friend that if a company is preparing for a bid or wants to set up a shareholder group—I think that he mentioned that—it is important that details can be accessed, other than in the most extreme circumstances such as a terrorist campaign. We debated that earlier, and I agree that in this case access to those details is important. It would be done by people asking for copies of the register. We are not saying that that should not happen.
We are talking, however, about details filed once a year at Companies House. We remain of the view that those serve no proper purpose. To the extent that they do, they are probably out of date and will mislead people more than tell them the state of play.

Question put, That the amendment be made:—

The Committee divided: Ayes 7, Noes 11.

Question accordingly negatived.

Clause 740 ordered to stand part of the Bill.

Clause 741

Application to registrar to make address unavailable for public insepction

Question proposed, That the clause stand part ofthe Bill.

Vera Baird: May I take the opportunity of this notional stand part debate to clarify something? The hon. Member for Huntingdon asked whether mortgagees would be able to use agents’ addresses instead of their own. The answer is that the Government intend to take powers to amend the system of registration of charges, in which we would intend to include such a provision.

Question put and agreed to.

Clause 741 ordered to stand part of the Bill.

Clauses 742 and 743 ordered to stand part of the Bill.

Clause 744

Certification of copies as accurate

Question proposed, That the clause stand part ofthe Bill.

Jonathan Djanogly: The explanatory notes say that, owing to the amended first company law directive, 68/151/EEC, copies provided in hard copy need to be certified unless the applicant chooses otherwise. Apparently that is not the case for electronic copies, although subsection (4) seems to imply that that might be required, but will be dealt with in another, as yet unspecified way. Will the Minister elaborate on that?

Vera Baird: In responding to the provisions of the amended first company law directive, the clause makes it clear that unless the applicant chooses otherwise, copies of information provided in hard copy must be certified as true copies, but electronic copies must not be so certified. Subsection (3) provides for the evidential status of certified hard copies in legal proceedings. The Secretary of State will have a power to prescribe by regulations methods of certification for copies provided by electronic means.

Jonathan Djanogly: I was asking whether the Minister could elaborate on the regulations in subsection (4), as I am a bit confused about what they might relate to.

Vera Baird: As I said, the Secretary of State will be able to prescribe the manner in which a certificate is to be provided, where a copy is provided in electronic form. Is the hon. Gentleman asking me what sort of certification is likely to ensue from those regulations?

Jonathan Djanogly: Yes.

Vera Baird: I am just working it out. Electronic signatures might be one way forward, but the regulations are bound to be consulted on, and I do not doubt that the hon. Gentleman will have substantial input into them.

Question put and agreed to.

Clause 744 ordered to stand part of the Bill.

Clause 745 ordered to stand part of the Bill.

Clause 746

Registrar’s notice to resolve inconsistency on the register

Jonathan Djanogly: I beg to move amendment No. 387, in clauseÂ 746,Â pageÂ 370,Â leave out line 12.
Subsection (3) says if a document is not delivered in the specified period,
“an offence is committed by—
(a) the company, and
(b) every officer of the company who is in default.”
The amendment would delete paragraph (b) for two reasons. First, now that the Government have decided to get rid of company secretaries for all private companies and thoroughly marginalise the role that remains, including an attack on their status as officers, paragraph (b) does not work, because it refers to officers. In practice, the secretary is responsible for filing, but if the secretary is no longer regarded as an officer, the provisions can be used only to punish directors, most of whom—particularly in bigger private companies—would have no idea that they were criminally responsible for not filing documents.
Secondly, we have a problem with the words “who is in default”, and would be grateful for confirmation of what they mean. Will all the directors be in default for not filing a form or, if the company passes a board resolution that a director should be responsible—say, in the absence of a secretary—would it be possible for only that director to be liable for the non-filing of documents? Presumably the wording also means that the board cannot delegate the role to a non-officer—say, the old private company secretary, who is no longer an officer of the company in law. The clause needs careful review.

Vera Baird: Where a document submitted to the registrar contains inconsistencies, the registrar can issue a notice to the company concerned requiring it to rectify the position. If it does not respond, an offence is committed. That is surely right, and I do not believe that the hon. Gentleman doubts that.
Liability for the offence in such a case, which is what the hon. Gentleman is concerned about, can attach to the company and/or to any officer of the company who is in default. We will discuss offences and liability more generally when we come to part 30, but I stress that the formulation in this clause is not in any sense unusual. Of course a private company secretary, if one is appointed, would be an officer of the company and that ought to be clear.
The majority of the offence provisions in the Bill attach liability to the company and to any officer. Clearly, one cannot attach liability to an officer if there is no such officer, but the hon. Gentleman’s amendment would remove liability from the officer and leave it solely with the company. I am not sure why that ought to be the case, if there is an appointed officer. In many instances, dealing with correspondence from Companies House will be the responsibility of a specific officer of the company. If they fail to deal with the correspondence such that an offence is committed, and if they are clearly at fault, why should they escape punishment, leaving the company as a whole to be penalised?

Jonathan Djanogly: Is the Minister saying that if an individual officer of a private company were given responsibility for filing documents in the absence of, for example, a company secretary, the other directors could rest easy?

Vera Baird: Will the hon. Gentleman repeat the last part of his question?

Jonathan Djanogly: Our concern, particularly if company secretaries will not be part of private companies, is that directors of large private companies will have no experience of filing company forms. Does the clause mean that they will collectively be criminally liable for overlooking the filing of a company form? That would be going overboard.

Vera Baird: The clause is about filing a document that contains inconsistencies, rather than not filing. The registrar will issue a notice to the company concerned and ask it to rectify the position, so it is not the case that somebody who does not know can commit an offence. A notice will be sent.
If an officer is responsible for the function, they may be liable. If they do not have the responsibility, they will not be in default under clause 774. Clearly, if an officer is responsible, there is no reason at all why they should not be liable for their default or, indeed, why the mechanism of making them liable should not encourage them to do the job properly in the first place, which is surely the point of the measure.
The hon. Gentleman is not making much of a case. The question has little to do with company secretaries in private companies. It is about whether an officer should be liable.

Jonathan Djanogly: I was making a legalistic but practical point about the situation that many private companies will find themselves in after the passing of the Bill, which is that they had better ensure that someone is responsible for filing documents. I am grateful for the Minister’s confirmation that that person would be responsible rather than the directors as a whole if a document is not filed.
I appreciate that filing documents is important. However, in the great course of events, the average director does not think that he should be criminally convicted for failure to file a single form.

Vera Baird: We will consider the definition of “in default” when we debate clause 774. That discussion will be important to the hon. Gentleman’s fully appreciating what I am saying about this clause. So I invite him to withdraw his amendment.

Jonathan Djanogly: Having heard that conversation, I am not entirely sure that my concerns have been dissipated. However, I heard what the Minister said and on that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 746 ordered to stand part of the Bill.

Clause 747

Administrative removal of material from the register

Jonathan Djanogly: I beg to move amendment No. 388, in clauseÂ 747,Â pageÂ 371,Â lineÂ 4,Â at end add—
‘(6) If any person suffers any loss or damage or incurs any expense as a result, direct or indirect, of a failure by the registrar to perform the registrar’s functions, the registrar shall indemnify and keep indemnified that person against all such loss, damage and expense.’.
The amendment was tabled in the other place by Lord Sharman for the Liberal Democrats. I thought that it was important to bring it back because it deals with a matter of principle.
The Bill contains clause after clause telling directors and companies how they must file documents and the penalties for not doing so, but what about problems that arise from Companies House getting it wrong? In 2005, the Law Commission report on company security interests referred to consultees’ views that in principle the registrar should be liable for losses caused by any failures resulting from negligence by Companies House.
The commission thought that that should be the subject of a comprehensive review or left to the courts. To my mind, Lord McKenzie, in his response in the Lords, significantly underplayed the possible harm from Companies House getting it wrong. He said:
“Generally, therefore, where a company suffers damage as a result of an error or omission on the public register, it will be because the original information was wrong or was wrongly delivered—not because of anything Companies House does or does not do.”—[Official Report, House of Lords, 28 March 2006; Vol. 680, c. GC343.]
I have to say that I agree with Lord Sharman when he replied that he had listened with “increasing incredulity” to the Minister’s response.
Companies House might handle 7 million documents a year, but it gets paid for many of those. When it makes a mistake that leads to a loss to the company, we believe that it should be answerable. There should not be a one-way process of liability against companies and directors. It is a fact that mistakes are made.
On 24 April, an article in The Daily Telegraph read:
“Companies House has admitted that it has been losing companies' reports and accounts at a rate of nearly 10 a month. 
The official registry of UK companies admitted in a Freedom of Information Act request submitted by The Daily Telegraph that it lost 190 accounts between March 2004 and October 2005. 
The figure applied to cases identified through the ‘late filing penalty regime’ - meaning companies were mistakenly pursued for not having filed their accounts within the correct time frame. 
The real figure could, however, be much higher. Judith Chainey, Freedom of Information officer at Companies House, said: ‘Although we have a number of areas within Companies House that deal with cases of potential lost documents not all of them are as clear cut as the late filing penalties figure.’
In a litany of excuses, Companies House said missing documents were mis-filed, lost by Royal Mail, or never sent.Mrs Chainey added: ‘We receive a fair number of empty envelopes each week.’
The customer services department logs all cases where customers claim they have filed accounts, she said.
There were 5,514 cases logged for the four and a half years between June 2001 and January 2006, including the 190 cases identified through late filing penalties.”
At the bottom it reads:
“Body Shop, the beauty products retailer, escaped a £500 fine earlier this year when Companies House admitted it had lost its accounts.
The company had received a receipt when it sent in its annual accounts last June. However, there was no record of the figures being lodged.”
I do not have accurate statistical information, but I think that the article makes the point that mistakes are made. Clearly, as a result, companies will suffer to a greater or less extent. The Minister might be able to elaborate on that and provide the Committee with more accurate details of lost documents. If she has that information, I am sure that we would be pleased to hear it. We think that that is an important issue and look forward to hearing her views.

David Howarth: I am grateful to the hon. Gentleman for bringing back this amendment, which was proposed by my noble Friends in the House of Lords. We are trying to stick to a principle of not reintroducing amendments with which we were not successful elsewhere, but this one makes an important point.
The only additional point that I wish to make is that the matter is complex, and if it were left to the common law or the courts to decide whether there should be a civil claim, the chances are that no liability would be possible. Any loss would strike most judges as purely economic, and in such cases there is liability only if the defendant is found to have assumed responsibility for the loss to the claimant. That is not a simple matter for the courts to decide, and the frequent experience of claimants in such circumstances is that they lose. Without an explicit statutory statement, it is unlikely that there would be any compensation in the circumstances to which the hon. Gentleman referred.

Vera Baird: There is of course an ex gratia scheme. I cannot help the hon. Member for Huntingdon by giving numbers of documents, but the ex gratia scheme has paid out about £130,000 in the past five years, no doubt in significant sums. He made the point that companies can lose money because of mistakes, and those sums were doubtless significant to the companies concerned, but they are not evidence of a big problem given the volume of transactions that the registrar has dealt with over that period.
I have looked for comparisons to see what other organisations do, which is not easy because they are set up on their own statutory bases. However, the Patent Office has a statutory exclusion from liability in much of its statutory work, while in contrast the Land Registry is obliged by statute to provide an indemnity. There does not appear to be any simple answer to the question of what analogies can be drawn. I understand entirely what the hon. Gentleman says, but in debating the amendment we are considering not situations in which the registrar has been given the wrong information, but those in which the error is on her side.
I return, as did the hon. Gentleman, to some of the points made in the other place, which are important in understanding the context of the amendment. I stress that Companies House has an effective complaints procedure, and my understanding is that in the vast majority of cases the use of that system ensures that errors are corrected quickly and efficiently before any material loss is suffered. There will now be an additional, informal way to alter mistaken documentation that has been submitted, providing another barrel to the gun. If there is loss to a company, there is the ex gratia payment scheme, which pays reasonable expenses if there has been an error on the registrar’s part.

Jonathan Djanogly: Will the Minister explain how that scheme works and how much is involved?

Vera Baird: I have already told the hon. Gentleman how much is being paid out.

Jonathan Djanogly: For instance, how much is involved if a company’s statutory accounts are lost?

Vera Baird: The standard appears to be that reasonable expenses are paid if an error on the registrar’s point causes someone to incur costs. I do not know whether it can be quantified precisely; I do not suppose that there is a going rate for a particular kind of failure. The courts might be able to intervene as a last resort, but I am not sure about the principle that the hon. Gentleman enunciated.
I do not deny that mistakes can be made. The figures for payments in the past five years suggest that they are not frequent, and when they occur there are processes for dealing with them and providing compensation when necessary. The hon. Gentleman might think that those processes will be strengthened by the ability informally to correct documents, which we have discussed. We would have to think long and hard before introducing any new formal process for indemnifying or compensating customers, because one comes back to the inevitable argument that it would impose costs on the system. Those would have to be borne ultimately by all the users of Companies House because there is no magic pot of money from which the compensation scheme could be funded.
A formal indemnification arrangement of the sort proposed in the amendment would create an unquantifiable contingent liability within Companies House. Some arrangement would have to be made to cover that, such as insurance or a contingency fund built up over time. Either way, setting up the arrangements would impose costs on Companies House and on the companies themselves over and above the costs of any payments made under the indemnification arrangements. There could well be further costs on top of those as it would be surprising if, in order to minimise its exposure, Companies House did not feel the need to introduce a new double checking process to ensure that it got everything correct.

David Howarth: I am sure that the Minister is going through considerations that are plainly relevant to the problem, but may I put to her another aspect of the problem, which is the question of how many mistakes will be made? If such a scheme were in place, might there not be an incentive for officials to make fewer mistakes? Although there might be costs, they might not be as high as she says.

Vera Baird: I am grateful for that intervention. Of course, if there are penalties to be paid for making mistakes, perhaps one makes fewer, but that is an unquantifiable contingent liability. Precisely for the reason that the hon. Gentleman has just enunciated, it is highly likely that Companies House will introduce a new checking process to ensure that it does not fall foul of the new penal regime or indemnification regime.
In addition, it is not right to suggest that employees of Companies House are at all careless about their tasks. The evidence is that they are not. If there were an error-prone organisation out there, we might need to go down this road, but there does not seem to be any groundswell in favour of a scheme of this kind. Users appear generally to be very satisfied with the service that they receive.
The real difficulty is that if we loaded up a system of compulsory indemnification, inevitably we would load up on top another extra checking facility, and we would load up all the costs of that on the customers of Companies House. We would be doing that for no particular reason, as nobody is suggesting that Companies House is making a mess in the first place, and at a cost of £130,000 over the last five years, it is quite impossible to suggest that it is doing so. I ask for the amendment to be withdrawn.

Jonathan Djanogly: The hon. Member for Cambridge (David Howarth) made an important point on the practicality of claiming under the existing law. To cut a long story short, he said that it is very difficult.Ex gratia payments are one thing, and the Minister mentioned the figure of £130,000 having been paid out, but in itself that figure does not mean much. It does not tell us how many claims have been made or how large awards have been for particular needs for redress.

Vera Baird: Obviously, at £26,000 a year, mistakes that are causing huge costs to companies are not occurring.

Jonathan Djanogly: The Minister said that the ex gratia payments are not related to damage. They are an administrative penalty, so I do not follow her on that point. If accounts were not filed on the register and a third party refused to contract, there could be a loss to the company. The ex gratia payment may deal with costs, but I do not think that we are talking about damages here. My problem with the clause is that we are talking about a one-way street. In the same way that companies may be liable, they should expect a certain service from Companies House and redress if they lose out because they do not receive it.
Saying that companies should not be put back into the position that they would otherwise be in because of possible cost to the public, which was the Minister’s main point, is not enough reason to say that there should not be some indemnification. However, such a scheme should perhaps have capped indemnification, whereby, in practice, the possibility of the unfathomed amounts that she mentioned would not come into play.

David Howarth: The other point that the hon. Gentleman should perhaps take into account is that if only about £120,000 of damage has been caused in a year by such an error—

Vera Baird: Five years.

David Howarth: In those cases, it would not be worth the organisation’s while to take steps that cost more than that to prevent further losses. One suspects that the Government are saying that more would have to be spent precisely because the real losses being suffered by companies are rather greater than the amounts being paid out by the ex gratia scheme.

Jonathan Djanogly: The hon. Gentleman makes a fair point, but as we have said before, the figure of £135,00—

Vera Baird: £130,000.

Jonathan Djanogly: That figure is not related to the loss. We do not know what losses companies have suffered, because the ex gratia payments relate to their costs.

Vera Baird: Is not the hon. Gentleman putting himself in a ludicrous position by advocating compensation when he does not have the first idea whether anybody has suffered any loss of any kind and when all the users of Companies House seem to be reasonably content? There is no groundswell and I have received no submissions on the issue from outside bodies. Compensation is being paid out, so where is the evidence of a need for anything else?

Jonathan Djanogly: I gave several examples to show that Companies House is making mistakes and, to the extent that loss arises from that, the process should not be a one-way street.
The Minister mentioned that Companies House might have to review its procedures if an indemnity scheme was put in place. In my experience, one of the best effects of litigation or the threat of it can be to make companies address their systems. It would not necessarily be a bad thing if Companies House had to address how its internal procedures worked because of the threat of an indemnity. On that basis, I shall press the amendment to a Division.

Question put, That the amendment be made:—

The Committee divided: Ayes 7, Noes 11.

Question accordingly negatived.

Clause 747 ordered to stand part of the Bill.

Clause 748

Rectification of register on application to registrar

Question proposed, That the clause stand part ofthe Bill.

Jonathan Djanogly: The Institute of Chartered Accountants has raised this issue. When Companies House is informed of identity theft—an issue to which I referred several times in earlier debates—it does not, under the Companies Act 1985, have the power to amend the public record to remove the fraudulent entries unless the applicant has made a successful application to court and received a court order. That process is cumbersome, expensive and time consuming.
In response to Lord Hodgson, Lord McKenzie claimed that he had some sympathy with the point in circumstances in which manifestly false information had been published. That Minister said that he would take the question away and review it, and we now have clause 748.
Will this Minister explain the thoughts behind the clause and advise us on what objections period under subsection (2) is likely and when we will hear of the process to be used? Presumably, the intention is that the provisions will be carefully thought through so that they will not, in themselves, be used to allow fraud.

Vera Baird: The Opposition proposed the inclusion of the clause through a colleague of the hon. Gentleman in the other place, and we are grateful for this helpful provision. I shall have to write to him on the detail of the length of the period for objections, but I assume that he welcomes the clause, as it was proposed by the Opposition in the other place. We think it is a very good provision.

Jonathan Djanogly: I hope I did not imply that I do not like the clause. I explained the process by which we decided on it and I think it will do good things. My queries are simply on the implementation process.

Question put and agreed to.

Clause 748 ordered to stand part of the Bill.

Clauses 749 to 752 ordered to stand part of the Bill.

Clause 753

Right to inspect index

Question proposed, That the clause stand part ofthe Bill.

Jonathan Djanogly: Can the Minister clarify something? If someone goes to the www.companieshouse.gov.uk website and looks at the index at any moment, will that be a good way to know whether there is any existing use of the relevant company name? In practical terms, this is an important issue for people who need to check their proposed company name.

Vera Baird: The answer is yes.

Question put and agreed to.

Clause 753 ordered to stand part of the Bill.

Clauses 754 to 760 ordered to stand part of the Bill.

Clause 761

Transliteration of names and addresses: permitted characters

Question proposed,That the clause stand part ofthe Bill.

Jonathan Djanogly: Will the registrar review the issue of permitted characters? Increasingly, companies are looking to incorporate symbols into their names, partly out of fashion, but partly because there are now so many companies that it is often hard to find a name without making a new word up or using symbols—for instance, by sticking .com at the end of the name, using the @ symbol or using the number 4 to indicate “for”. The notes refer to the use of Urdu and Japanese symbols, but I am thinking about more everyday symbols that people tend to use in this day and age. In fact, anyone who texts their children will know exactly what I mean.
The registrar gave little leeway in the past. Is the policy now to be relaxed?

Vera Baird: I will consult on the regulations.

Question put and agreed to.

Clause 761 ordered to stand part of the Bill.

Clauses 762 to 769 ordered to stand part of the Bill.

Clause 770

Registrar’s rules

Question proposed, That the clause stand part ofthe Bill.

Jonathan Djanogly: I assume that the registrar’s rules will be updated in accordance with the provisions, but even though they are not subject to orders, will the registrar be consulting on them, and when is that likely?

Vera Baird: Yes, we will be consulting on them. I cannot tell the hon. Gentleman when.

Question put and agreed to.

Clause 770 ordered to stand part of the Bill.

Clause 771 ordered to stand part of the Bill.

Clause 772

Contracting out of registrar’s functions

Question proposed, That the clause stand part ofthe Bill.

Jonathan Djanogly: Will the Minister explain what aspects of the registrar service are being reviewed to be contracted out?

Vera Baird: The clause largely restates subsections (7) and (8) of section 704 of the 1985 Act. The Deregulation and Contracting Out Act 1994 envisaged that some of the registrar’s functions might be contracted out. The clause provides for that possibility by saying that where a contractor is processing documents, the registrar may provide for them to be sent directly to the contractor. The 1994 Act does not permit the function of making subordinate legislation to be delegated, and subsection (3) of the clause provides that registrar’s rules are not regarded as subordinate legislation for that purpose, permitting the contractor to make rules about the form and manner of delivery, for example.

Question put and agreed to.

Clause 772 ordered to stand part of the Bill.

Clause 773 ordered to stand part of the Bill.

Clause 774

Liability of officer in default

Jonathan Djanogly: I beg to move amendment No. 390, in clause 774, page 380, line 8, at end insert ‘knowingly and wilfully’.

Eric Illsley: With this it will be convenient to discuss amendment No. 391, in clause 774, page 380, line 13, leave out ‘authorises or permits’.

Jonathan Djanogly: We move on to part 30, entitled “Offences under the Companies Acts”. The amendments were tabled by Lord Sharman on behalf of the Liberal Democrats in the Lords Grand Committee on the basis of advice from the Law Society. We believe that an important issue of principle is involved.
Section 130 of the Companies Act 1985, which is replaced by this clause, provides that for an offence to be committed by an officer, the officer has to authorise or permit the relevant offence knowingly and willingly. There is no such test in the Bill. In practice, an officer may not know that he has committed an offence yet still be liable for prosecution. I thought that Lord Sainsbury’s justification for the change was fairly weak.
Many of the offences are related to non-filing of documents. Many directors simply assume that such things will be carried out by someone else such as the company secretary. This punitive change, combined with the fact that private company secretaries will no longer be officers, will surely increase the likelihood of a director causing an offence about which they no idea.
Furthermore, we thought that the spirit of the age was to move away from the blunt hand of criminal offences to more subtle and normally appropriate civil penalty provisions. The clause runs in the face of that principle. We think that the Government should reconsider it, and the amendments reflect that.

David Howarth: Again, I am grateful to the hon. Gentleman for bringing amendments back, although I have had some second thoughts about what is now amendment No. 391. However, the case for amendment No. 390 is still strong. As a matter of principle, we should not create crimes of negligence unless there is an overwhelming case for doing so. Amendment No. 390 would ensure that the crimes created by the Bill were crimes involving an act done knowingly and wilfully. That would prevent a situation in which an offence is committed without the offender knowing what they are doing.
As I said, I have a problem with amendmentNo. 391. The offensive word is “permits” rather than “authorises”. It seems right in principle that a person who authorises someone else to commit a wrongful act should be held liable for it. The word “permits” is somewhat broader, so there is a problem with its scope. 
Finally, there is the question of the interaction between the two amendments. Accepting amendment No. 390 so that an offence could only be committed “knowingly and wilfully” would obviate the need for amendment No. 391. I do not think that both amendments are necessary. If one were to be chosen, it should be amendment No. 390, which is the crucial one.

Vera Baird: Amendment No. 390 should not be agreed to. I shall return to it in a moment.
The Government believe that a reformed Companies Act must be underpinned by effective and proportionate sanctions and enforcement. The Bill sets out clearly the basis on which criminal liability for a breach of the requirements is allocated and makes several changes to update and clarify the law.
The hon. Member for Huntingdon talked about the tide turning against criminal offences. I suppose that he is thinking about the Hampton reforms, which focus on increased use of administrative penalties, but the company law regime already makes use of such penalties if we believe that they are appropriate; for instance, as a sanction against late filing of accounts.
Most of the regulatory requirements associated with company law are currently enforced using criminal sanctions. The company law review considered the issue in detail.

Sitting suspended for Divisions in the House.

On resuming—

Vera Baird: There is a need to underpin the reformed Companies Act with effective and proportionate sanctions, and enforcement. I have dealt with the ways in which the administrative penalty regimen is not at all being ignored. Nor are we flowing against the tide in this case. The company law review examined the issue of criminal penalties as opposed to administrative ones and concluded that as long as they were enforced sensibly, the efficiency of the criminal sanctions regime historically had been sufficient to overcome any misgivings about the proportionality of applying sanctions of that kind to breaches of procedural requirements.
On the specific amendments, the relevant clause in the 1985 Act, as the hon. Member for Huntingdon has said, includes the words “knowingly” and “wilfully”. The point is that “knowingly” should not be in this clause, because it would exclude liability for somebody who does not know because they have deliberately not looked, and liability would be excluded for reckless officers—those who deliberately close their eyes to their responsibilities.
It is also not impossible that such a form of words would be interpreted to mean that officers would not be liable if they successfully claimed that they did not know that their act constituted an offence.

Jonathan Djanogly: I believe that the Minister is describing the position that exists under the Companies Act. Is that the case?

Vera Baird: Yes. We have concerns that the definition of “officer in default” as exists under the 1985 Act could in a small number of cases cause difficulties in practice. It is precisely for that reason that we sought to improve the definition so that it is clear, for instance, that an officer cannot escape liability by deliberately turning a blind eye to what he is responsible for doing.

David Howarth: I put to the Minister the obvious point that turning a blind eye implies that someone knows something about the facts in the first place, because otherwise they could not turn a blind eye to them.
My other question was whether I heard the Minister say that there were cases that implied that ignorance of the law was an argument that a defendant might run with? If so, that would be surprising, as I am not aware of that being the case.

Vera Baird: Turning a blind eye does not mean that someone turns a blind eye to what they know; it means that they turn a blind eye to their need to find something out. I am talking about where they do not know whether A or B is the case and they have turned their blind eye to A just as much as they have turned it against B. I would have thought that that was a fairly straightforward proposition. It is a powerful one. One does not want to open up a loophole, as this amendment would, that would allow people who deliberately did that to escape their liability.

Jonathan Djanogly: The Minister is speaking quite forcefully to make the point that the removal of the words mentioned in amendment No. 390 is important because it would make things more just. Can she give an instance or some examples of why she feels the law needs to be changed so that those words are taken out? Has something happened that makes her feel that the existing law does not work?

Vera Baird: As I have said, it is not about the existing law not working on a wholesale basis. Certain elements could, in the cases I have mentioned, cause difficulties. The law moves on, case law emerges and an appreciation of how particular words and phrases can be interpreted emerges as time passes. It is entirely appropriate that when such things emerge we move to stop wrongdoers from getting away with wrongdoing. I am sure that the hon. Gentleman can readily appreciate the argument, now that it is being set out, that recklessness could be excluded if we require somebody “knowingly” and “wilfully” to do something. It is exactly the reckless person who will not be caught. We believe that anyone who is recklessly or deliberately ignorant of their responsibilities cannot be described as innocent, and it is right that such a person should be liable under the clause.
I turn to the words “authorises” or “permits”. They are also an important part of the clause. It is important to make it clear that directors might be liable for an offence committed by the company if he
“authorises or permits, participates in, or fails to take all reasonable steps to prevent”
the offence. There might be some overlap, but I do not think that there is much complaint about that. However, if there was ever a need to prosecute somebody in court for that kind of offence, setting out the words, the ordinary meanings of which are clearly understood, would make it easier for the facts to be put firmly, or fail to go into one of those categories. So the extra words that the second amendment seeks to remove are important and should not be removed. I invite the hon. Gentleman to think his amendment ill-conceived and not to press it.

Jonathan Djanogly: First, I shall deal with amendment No. 391. I agree with what the hon. Member for Cambridge said: in the context of amendment No. 390, it is probably unnecessary. So I shall not disagree with what the Minister had to say to that amendment.
I am afraid, however, that we are in disagreement on amendment No. 390. Actually, having heard the Minister’s explanation, I feel slightly stronger about the matter than I did previously. She spoke about the need to be just and proportionate. I do not feel that the removal of the words “knowingly and wilfully” from the provisions is necessary. I say “removal” because that is what the law says at the moment. From what she has said, I cannot understand why we need to change the current position. If she had given a clear example of why the existing provisions are plainly unfair, do not work or have led to unwelcome and indirect issues, I might have had more sympathy, but as it is, a clear case has not been made for what ultimately will put directors in a tougher position than is currently the case.

James Brokenshire: I must apologise to the Committee for being detained elsewhere and having missed some of the comments in the debate. Does my hon. Friend have any feel for what the implications might be for the insurance market and for directors and officers insurance?

Jonathan Djanogly: My hon. Friend makes an excellent point. Clearly, their liability has increased because they cannot rely on, for example, the fact that they did not know about a particular issue. As a result of that increased liability, I imagine that directors and officers—DNO—insurance premiums will increase. So to that extent, he makes a good point. Again, that leads me on to say that I shall press amendment No. 390 to a Division.

Question put, That the amendment be made:—

The Committee divided: Ayes 8, Noes 11.

Question accordingly negatived.

Clause 774 ordered to stand part of the Bill.

Clause 775 ordered to stand part of the Bill.

Clause 776

Application to bodies other than companies

Jonathan Djanogly: I beg to move amendment No. 392, in clause 776, page 380, line 33, at end insert—
‘(2A) For the purpose of subsection (2) “manager” means a person other than a director or secretary, whether or not employed by the company who, under the immediate authority of a director or secretary of the company is charged with the exercise of managerial functions which include the function in relation to which there has been a default or (in relation to offences relating to the maintenance, filing or distribution of accounts and records) is responsible for maintaining the accounts or other records of the company in question.’.
On the advice of the City law firm, Travers Smith Braithwaite, worry was expressed in another place by Lord Hodgson about the definition of “manager”. Given the importance that is now attached to the definition for offences applying under the Companies Acts, it seems worth while to define “manager”. Lord Sainsbury identified the need to weigh possible advantages of defining it against the risk that, in doing so, new uncertainties were introduced. We ask the Minister to review the position, and not least to consider the new much tougher liability provisions under clause 774, when a manager could be criminally liable without knowing that he or she was a manager, let alone also not knowing that they were committing an offence in the first place. The provision should be tightened up so that managers know that they are indeed managers for the purposes of company law.

Vera Baird: The amendment is not about managers of companies, but managers of bodies other than companies, so the hon. Gentleman’s references to company law do not have a huge amount to do with it. The amendment is quite out of place. It is not on all fours with the way in which matters were moved in another place. It is generally puzzling and I find it difficult to respond to something that is not what he represented it to be. He talked about the difficulty of a manager in a company knowing whether or not he was a manager, but the clause has no application to companies.

Jonathan Djanogly: Perhaps the Minister misunderstood me. Clause 776(2)(b) states:
“the reference to a manager or secretary of the company shall be read as referring to any manager, secretary or similar officer of the body.”

Vera Baird: The clause relates to the application to bodies other than companies and not to companies.

Jonathan Djanogly: The amendment is asking for a definition of “manager”. If I said “company” instead of “bodies other than companies”, I apologise. However, the amendment still stands because it relates to defining a manger for the purposes of the clause.

Vera Baird: But the hon. Gentleman’s arguments do not make any sense because all his references are to companies, and the provision is not about companies. Indeed, under the amendment, a manager means a person other than a director or secretary, whether or not employed by the company. Yet the clause does not refer to companies. It is a bad idea to define “manager”, particularly in a way that is vague and likely to confuse, as it is set out in the amendment. The position is as simple as that.

Jonathan Djanogly: It is clearly as simple as that if the Minister says so. How could it be otherwise?

James Brokenshire: Will my hon. Friend give me guidance on “manager” for the purposes of clause 774(2), which seems to relate to companies? It may be the way in which it is co-ordinated. I have sympathy with his desire to define “manager” under Bill and to give it some context.

Jonathan Djanogly: My hon. Friend makes a point that I was going to make in conclusion. The clause refers to a manager, and while I appreciate the Minister’s point that the drafting of the amendment may not be as fine as it could have been, she has many excellent advisers who could have improved it. I return to my basic point that we maintain that the word “manager” should be defined for the purpose of the clause. However, we heard clearly the Minister’s views, and on the basis of them, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 776 ordered to stand part of the Bill.

Clause 777 ordered to stand part of the Bill.

Schedule 4

Amendments of remaining provisions of the Companies Act 1985 relating to offences

Question proposed, That this schedule be the Fourth schedule to the Bill.

Jonathan Djanogly: If we are to consolidate, then surely the schedule should be merged into the various parts of the Bill, together with the remaining bits left over in the 1985 Act.
Many of the offences in that Act, such as those under section 429(6), “Failure to send notice etc relating to buy-out of minority shareholders”, section 444(3), “Failure to give information about interests in shares etc” and section 449 on the wrongful disclosure of information, carry 12-month penalties in England but, I note, only six-month penalties in Scotland. Will the Minister explain that disparity in sentencing, which relates to so many offences that if one were a crook it would be much wiser—100 per cent. wiser—to set up a company in Scotland and take one’s criminal chances there because the possible sentences would be so much lighter.

Vera Baird: Far be it from me to suggest that the hon. Gentleman has the mind of a crook, but he has shrewdly made a good point. I am not responsible for the Scottish legal system, and I am afraid that that is the way it is.

Jonathan Djanogly: I hear what the Minister says, but is it not possible for her to make representations to some of her colleagues so that a united approach can be taken to remedy what she has admitted is an anomaly which should be sorted out?

Question put and agreed to.

Schedule 4 agreed to.

Clauses 778 to 780 ordered to stand part of the Bill.

Clause 781

Summary proceedings: time limit for proceedings

Question proposed, That the clause stand part ofthe Bill.

Jonathan Djanogly: Why, for England, in subsection (1)(a), is the limitation set
“at any time within three years after the commission of the offence,”
whereas for Scotland, in subsection (2)(a), it is stated that proceedings
“must not be commenced after the expiration of three years from the commission of the offence”?
Can the Minister confirm that they mean the same thing, and if so, why they have not been drafted in the same way? I thought that the purpose of the Bill was to sort out such things.

Vera Baird: They do not mean the same thing at all; they mean what they say. Again, it is a rather straightforward point.

Question put and agreed to.

Clause 781 ordered to stand part of the Bill.

Clauses 782 to 786 ordered to stand part of the Bill.

Clause 787

Form of company records

Question proposed, That the clause stand part ofthe Bill.

Jonathan Djanogly: We move on to part 31 and company records. What is the significance of the date 12 February 1979 in subsection (5)? It mystifies me, but I am sure that the Minister can explain all.

Margaret Hodge: I shall write to the hon. Gentleman.

Question put and agreed to.

Clause 787 ordered to stand part of the Bill.

Clause 788

Regulations about inspection of records and provision of copies

Jonathan Djanogly: I beg to move amendment No. 393, in clause 788, page 385, line 9, leave out ‘negative’ and insert ‘affirmative’.
The clause allows the Secretary of State to make provision by regulations for companies to have to make available any company records that are available and to provide copies thereof. I do not say that such regulations are not necessary, but they will involve questions of privacy, evidence and data protection—and possibly of human rights. That could be serious when considering the protection of the rights of companies and of directors. However justifiable such state interference may be, we feel that the affirmative resolution procedure would be more appropriate in such circumstances.

Margaret Hodge: We oppose the amendment because it would change the existing law. We do not think that an enhanced level of scrutiny is necessary in such circumstances. I remind the Committee that the power established in the clause was considered by the Delegated Powers and Regulatory Reform Committee, which concluded that the case had been made for the power and that the power was subject to an appropriate level of scrutiny.

Jonathan Djanogly: I thank the Minister for that response, which was expected. I have made my point. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 788 ordered to stand part of the Bill.

Clause 789 ordered to stand part of the Bill.

Sitting suspended.

On resuming—

Clause 790

Service of documents on company

Jonathan Djanogly: I beg to move amendment No. 394, in clause 790, page 385, line 38, after ‘Scotland’, insert ‘or Northern Ireland’.
Suitably refreshed, Mr. Illsley, we forge on. The clause is designed to ensure that there is a place at which a document may be served for all companies registered in Great Britain, including registered overseas companies. However, it would seem that it does not catch companies registered in Northern Ireland. When the business of such companies is conducted in, say, England, sense would dictate that service should be capable of being effected in England at the companies’ principal places of business.

Margaret Hodge: We accept this one.

Jonathan Djanogly: I am slightly at a loss for words. Obviously that was a remarkably successful break. The Minister is off to a good start and let us hope it continues.

Amendment agreed to.

Clause 790, as amended, ordered to stand part ofthe Bill.

Clause 791

Service of documents on directors, secretaries and others

Question proposed, That the clause stand part ofthe Bill.

Jonathan Djanogly: The clause is designed to ensure that the address for any director or secretary that is on the public record is effective for the service of documents on that person. The provision also applies to the address on the public record of various other persons for whom the Bill requires an address on the public record. However, the clause treats secretaries as officers, as though other proposed changes had not happened. Although I should like company secretary roles to be recognised, do other Government proposals not mean that their description should not be amended in this provision?

Margaret Hodge: I assume the reference is to company secretaries of public companies and not necessarily of private companies. Secretaries of private companies are officers. That is where they are included.

Jonathan Djanogly: Well, yes, but the clause applies to
“a director or secretary of a company”.
If what the Minister says is the case, should she not clarify it with a suitable amendment?

Margaret Hodge: No.

Question put and agreed to.

Clause 791 ordered to stand part of the Bill.

Clause 792 to 795 ordered to stand part of the Bill.

Schedule 5 agreed to.

Schedule 6

Communications by a company other than a traded company

Jonathan Djanogly: I beg to move amendment No. 395, in schedule 6, page 495, line 25, at end insert—
‘(6) A member may revoke his agreement or deemed agreement to receive documents by their being available on the website if, at any time, he provides the company with written notice of such request.’.
The schedule deals with sending or supplying documents or information and the amendment provides that if a member of a private company wishes to return to receiving hard copy documents after he had agreed or was deemed to have agreed to receive them via the web he should be able to do so. I believe that that is already the position for listed companies, but perhaps the Minister would confirm that.

Margaret Hodge: The hon. Gentleman was, I think, talking about the revocation of an agreement to have information sent via the web. The last six words of paragraph 9 of schedule 6 confirm that that stands unless the individual has chosen to revoke an agreement, so I think that the point is covered.

Jonathan Djanogly: On the basis that my point is covered, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Schedule 6 agreed to.

Schedule 7 agreed to.

Clause 796 ordered to stand part of the Bill.

Clause 797

Right to hard copy version

Jonathan Djanogly: I beg to move amendment No. 396, in clause 797, page 388, line 10, leave out subsections (4) and (5).
The clause provides for individual members or debenture holders to have the right to require information to be sent in paper copy form. On the basis of advice from the Law Society, Lord Sharman moved an amendment on behalf the Liberal Democrats to leave out subsection (4) as it contains criminal sanctions that were felt not to be appropriate in so far as they are disproportionate to the offence that is committed. The Minister at the time said that he would discuss that with his advisers and I should be grateful if we could have an update on the position.

Margaret Hodge: Our position is unchanged. Our view is that the criminal sanction is proportionate and consistent with that provided in clauses 415 and 416, which give a member a similar right to ask for a copy of the annual report. Our position is unchanged.

Jonathan Djanogly: I cannot say that I am particularly pleased to hear that the Government’s position is unchanged, but that is certainly an update on the position that was discussed in the Lords. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 797 ordered to stand part of the Bill.

Clause 798 ordered to stand part of the Bill.

Clause 799

Deemed delivery of documents and information

Jonathan Djanogly: I beg to move amendment No. 397, in clause 799, page 388, line 39, after ‘Kingdom’, insert ‘or overseas’.
We are dealing with deemed delivery of documents and information and the clause sets out when communications from a company are deemed to have been delivered. It does not contain any provision dealing with deemed delivery to non-UK addresses. The same deemed delivery period should apply to those addresses and the amendment seeks to achieve that. At a time when a large number of shareholders are not British, surely company law should provide for the timing of delivery of documents overseas.
I remember the issue arising quite frequently in relation to similar provisions contained in companies’ articles, which I assume take precedence underclause 799(6)(b). I remember hearing advice that, at the very least, the words “United Kingdom” had to be changed in articles to “any country in the EU”. I believe that that was due to EU law. Has the Minister looked into the matter? I would be pleased to hear her comments.

Margaret Hodge: I am glad that the hon. Gentleman will be pleased to hear from me. An identical amendment was proposed in the House of Lords and the argument has not changed since then. However wonderful international post services have become, we think that it would be a bit tough to apply that time limit.

Jonathan Djanogly: I hear what the Minister says, but surely there should be some defined time limit by which delivery should have been made.

James Brokenshire: I wonder whether my hon. Friend thinks that the significance of the matter will increase, given that many international companies are attracted to the capital markets in the United Kingdom. They have been seeking to list their shares most recently on the alternative investment market, moving up to the official list in due course. There is likely to be an increasing number of international shareholders, and the proposal might be helpful for companies in terms of obtaining certainty regarding the delivery of documentation.

Jonathan Djanogly: My hon. Friend makes a good point. It seems to me that a foreign company, particularly an EU-based company, could make a case that the provisions in the clause are unfair. Will the Minister at least explain why the proposal should not apply to all EU companies?

Margaret Hodge: This issue was discussed in the House of Lords—I have the Hansard with me and no doubt the hon. Gentleman does, too—so this is not, in my view, the best use of our time. Section 7 of the Interpretation Act 1978 provides that delivery is deemed to be effected
“at the time when the letter would be delivered in the ordinary course of post”.
One assumes that, as business becomes more global, greater use will be made of electronic communication.

Jonathan Djanogly: I thank the Minister for that further explanation. If she had provided it in the first place, perhaps we would not have had to spend so long on the clause. On the basis of the explanation, I am happy to beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 799 ordered to stand part of the Bill.

Clauses 800 to 806 ordered to stand part of the Bill.

Schedule 8 agreed to.

Clause 807 ordered to stand part of the Bill.

Clause 808

Classes of shares

Jonathan Djanogly: I beg to move amendment No. 398, in clause 808, page 394, line 15, leave out subsection (2).
We now move on to part 32 of the Bill, which is entitled “Companies: Interpretation”. The general purpose of the clause is to define “class of shares” and “class rights”. Both terms are not defined in the Companies Act 1985, but are used at common law where rights—voting rights, rights to a dividend or rights to a return of capital—attach to a particular share and those rights are not attached to shares in another class.
This is a probing amendment and I would be grateful if the Minister explained the purpose of subsection (2). From where does it derive? If shares have different dividend rights, as the subsection proposes, how can they be of the same class?

Margaret Hodge: The clause deals with a more complex issue, on which I am happy to share our thinking with the hon. Gentleman. The definition it contains is important because it contains various relaxations for private companies that have only one class of shares. For example, under clause 541, the directors of a private company that has only one class of shares could allot further shares in the company to the same class without having to obtain prior authorisation for the proposed allotment.
The qualification in subsection (2) carries forward an exemption contained in section 128(2) of the 1985 Act to what amounts to a separate class of shares. That is required because it is quite common practice for a company that proposes to allot new shares in the same class as an existing class to state in the terms of the allotment that the new shares will not rank for a dividend with existing shares of the same class before a certain date in the future, or in respect of the financial year. Subsection (2) makes it clear that that fact alone will not mean that the shares are of a separate class to that of existing shares if in all other respects the rights attached to them are the same. In short, we think that the provision is useful. I hope that the hon. Gentleman will withdraw his amendment.

Jonathan Djanogly: I thank the Minister for that comprehensive response. On that basis, I am happy to beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 808 ordered to stand part of the Bill.

Clauses 809 and 810 ordered to stand part of the Bill.

Clause 811

The former Companies Acts

Question proposed, That the clause stand part ofthe Bill.

Jonathan Djanogly: The clause defines the meaning of “former Companies Acts”. Paragraph (b) provides that certain provisions of the Companies Act 1985, and so forth, are no longer to be in force. Now that there is to be full consolidation, do the Government propose to submit an amendment to change the clause from applying only to certain provisions, to repealing the Companies Act 1985 completely? Perhaps the Minister could also take this opportunity to update us on her plans for consolidation.

Margaret Hodge: We are not consolidating all the provisions of the 1985 Act into the Bill. I am about to send a letter—I signed it today—to all members of the Committee providing the next set of consolidation clauses. The letter should be with hon. Members in the next day or two, depending on the internal post.

Jonathan Djanogly: Will the letter tell us which parts of the Act will not be consolidated? That would be very helpful.

Margaret Hodge: We can certainly let the hon. Gentleman know that. I do not think that that information is in this particular batch, but I can certainly let him know.

Clause 811 ordered to stand part of the Bill.

Clauses 812 and 821 ordered to stand part of the Bill.

Clause 822

Name suggesting connection with government or public authority

James Brokenshire: I beg to move amendmentNo. 401, in clause 822, page 399, line 10, at end insert
‘, but excluding for this purpose any company owned or controlled by persons other than Her Majesty’s Government, any part of the Scottish administration or Her Majesty’s Government in Northern Ireland’.
We move to part 34 of the Bill, which provides the regulatory framework for the use of business names. In some respects, this part follows the concepts and framework governing company names, which we debated in relation to part 5, but there are several important distinctions.
Clause 822 provides that a person may not
“carry on business in the United Kingdom under a name that would be likely to give the impression that the business is connected with”
a number of organisations, including
“any public authority specified...by regulations made by the Secretary of State.”
Subsection (2) then defines a public authority as
“any person or body having functions of a public nature.”
Amendment No. 401 is a probing amendment to clarification of what precisely is meant by the term “public authority” and, in particular, to confirm that the provision will not be used in respect of a company that undertakes services of a public nature. For example, a waste management company might undertake kerbside collections of domestic refuse on behalf of the local authority. That could be construed, perhaps correctly, as a function of a public nature, and it would be strange if the clause could be used to protect the name when adequate protections exist in part 5 to do so.
In seeking to clarify the definition of a public authority—I recognise that it would still be in the Secretary of State’s power to make an order to define precisely who would be covered by the definition—I seek to gain an understanding of whether the provisions are intended to cover examples such as mine, in which the waste management company is collecting refuse. If so, what is the basis for that, given that other provisions would apply in relation to misleading names?
The amendment would exclude
“any company owned or controlled by persons other than Her Majesty’s Government, any part of the Scottish administration or Her Majesty’s Government in Northern Ireland.”
It is therefore designed to clarify the term “public authority” so that it is clear that it relates to an entity that is owned by the state. I shall listen with interest to the Minister’s comments to see how wide the clause is intended to be. The reliance on an order from the Secretary of State needs to be understood, so that we can see how much latitude there is.

Vera Baird: I am grateful to the hon. Gentleman for succinctly and clearly setting out the purpose of the amendment. The harm and mischief that he intends to avoid is an unduly wide interpretation of the phrase “public authority”. In the Human Rights Act 1998, for instance, that phrase is intended to have a functional definition. Where a private company carries out public functions, the straightforward interpretation would seem to be that the company would be a public authority while it was carrying out those functions, but not a public authority while it was not carrying them out. That has been fairly narrowly interpreted in the case of Heather v. Leonard Cheshire Homes. It was found that a Leonard Cheshire home, even though it was exercising functions that would otherwise have been exercised by a local authority—namely, giving care to disabled people—was not a public authority.
It is therefore possible that there is no need to worry. However, it is certainly not the intention that the Secretary of State’s embrace would catch the kind of refuse company that the hon. Gentleman mentioned. The point is to prevent the public from being misled into thinking that a company has an official status, when, in fact, it does not. Approval is required if the name suggests a connection with the Government or with any local or public authority. We would not be avoiding the same mischief if the provision was made wide enough, or if it was intended to be made wide enough by regulation, to cover a bin collecting firm.
The mischief is that if the amendment were passed—the hon. Gentleman said that it is a probing amendment, in any event—it would exclude any body that was not owned or controlled by the Government. That would include public bodies such as the Mayor of London and the London Assembly and regulators such as Ofcom and Ofgem. There clearly is an unacceptable risk that such names might be adopted for nefarious purposes. I am told that there have been several scams involving such trickery—data protection notification agencies, for example. We intend to use the power to prohibit names that convey a connection with such public authorities.
Several regulatory bodies are private companies limited by guarantee, while others are companies formed by private Acts of Parliament or royal charters. The amendment would prevent the regulations from being used to protect the public from businesses using names that wrongly suggested a connection to such a body if it was independent of the Government. I hope that the hon. Gentleman appreciates that the power is not intended to be used in the way he suggested, and that the amendment would overly narrow it and prevent the impact of the mischief prevention that it is intended to provide.

James Brokenshire: I am grateful to the Minister for that clear explanation of the logic and rationale behind the clause. As I said, my concern was that the clause might be used to give a commercial advantage to a company that carried out a public function. The Minister was right to highlight the human rights case law, which gives some grounds for potential confusion, albeit that the Leonard Cheshire Homes case significantly narrowed the definition of the interpretation of a public authority. The Minister’s point about other public authorities or bodies that are not encapsulated within the amendment is a valid one, but I tabled it to gain clarification on the way in which the Secretary of State’s order-making power would be used. What the Minister has said about not causing mischief or a misleading impression in relation to the connection with the Government is helpful.
Given what the Minister said about how the order-making power will work, and that the definition of public authority will bite only in the context of the order-making power, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 822 ordered to stand part of the Bill.

Clauses 823 and 824 ordered to stand part of the Bill.

Clause 825

Withdrawal of Secretary of State’s approval

James Brokenshire: I beg to move amendmentNo. 402, in clause 825, page 400, line 11, after ‘policy’, insert
‘where harm may be caused to the public’.

Eric Illsley: With this it will be convenient to discuss the following amendments: No. 403, in clause 825, page 400, line 12, after ‘by’, insert ‘reasonable’.
No. 404, in clause 825, page 400, line 12, after ‘notice’, insert ‘in writing’.
No. 405, in clause 825, page 400, line 13, at end add 
‘and the reason or reasons why the approval is being withdrawn.’.

James Brokenshire: The clause allows the Secretary of State to withdraw his or her approval of a business name when the name suggests a connection with the Government or a public authority, or uses some other form of sensitive word or expression. As drafted, the Secretary of State has a wide power to withdraw the permission if it appears to him or her that there are overriding considerations of public policy. There should be certain protections for the businesses concerned in such circumstances in the interests of natural justice. In particular, the business concerned should understand why approval to use the name has been withdrawn, and that notice should be in writing. I believe that that is common ground.
I note the debate that we had on the general concept of “in writing”, and that might well be dealt with in the round as with all such issues in the Bill. Reasonable notice should be given to enable the business to make the transition to a new name. That can be seen in the drafting. The Secretary of State is able to use
“overriding considerations of public policy”.
The amendment would insert the phrase:
“where harm may be caused to the public”
to give that some context. Some contextual position would be helpful so that we can understand how the Secretary of State intends to use the power. At the moment, subsection (3) simply says that the notice must state the date from which the approval is withdrawn, hence the reason why the amendment seeks to add the words
“and the reason or reasons why the approval is being withdrawn.”
The business would therefore know that the power was not being used in a capricious or inappropriate way, and if there had been some irrationality or unreasonableness on the part of the Secretary of State, a legal challenge could be undertaken.
The power should not be used purely for ease of administration for the Government. That may be considered as an overriding consideration of public policy, but it may pose no harm to the public. Amendment No. 402 therefore tries to offer a context by ensuring that the power would be used only where harm may be caused to the public. The amendments are generally probing in nature, but they also seek some greater understanding of the ambit of the clause and to ensure that the sorts of basic protections that are not unreasonable to businesses are provided within it.

Vera Baird: We would agree to consider amendment No. 404, which requires the notice to be in writing, if the hon. Gentleman is happy not to press it to a Division. We are pretty sympathetic to the idea that these notices should be in writing. It is quite odd that under subsection (3) the notice must state the date from which the approval is withdrawn. I do not quite know how a notice can state the date unless it is in writing. The individual who was notifying would have to state the date, so it is probably implicit that it should be in writing anyway. We will take that away and tidy it up.
The hon. Gentleman raised a specific point about whether overriding considerations of public policy would include ease of administration. It would not. Amendment No. 402 restricts the public policy reasons for withdrawing approval for the use of a business name to a situation where harm would be caused to the public. Our difficulty with that is slightly oblique. As the risk of harm to the public is the reason underlying the requirement for prior approval for the name, it is not strictly necessary to specify that mischief as the reason for withdrawing approval. We therefore wonder whether amendment No. 402 would add anything, bearing in mind that there are always dangers in adding on to a clause that is quite similar to another clause.
The hon. Gentleman and I have looked at clause 65. There is a danger that if we add something on to another clause that otherwise resembles clause 65, it would be easy for them to be interpreted differently. If he is content that the mischief that we seek to avoid is harm being caused to the public—that is really the only basis on which the power would be used—it is better not to accept amendment No. 402.
Amendment No. 403 would require reasonable notice to be given. The argument is pretty similar. If the Secretary of State developed a policy of giving unreasonable notice and required companies to change their names on demand, no doubt it would be challenged. We suggest that common law is probably sufficient protection. It is implicit that notice would need to be reasonable for the exercise of the power itself to be reasonable at all. Although this is a slight extension of what I would say is implicit in common law, we would none the less say that making arbitrary decisions about withdrawing consent without giving reasons would probably be so open to challenge that it would not occur.
Again, there is no reason to specify without giving reasons what we fear about all three amendments if the hon. Gentleman is satisfied that the common law acts in the way that I suggest it does. By adding bits, the amendments will cast doubt on whether the drafting elsewhere in the Bill requires the Secretary of State to give reasonable notice of and reasons for the directions that he makes. I am thinking particularly about clause 65, in which the nature of the mischief is different but the structure of the clause is similar.
If the hon. Gentleman is satisfied that the common law will act to put pretty well all the words he wants into the Bill, I invite him to withdraw the amendment. However, we are happy to consider amendmentNo. 404.

James Brokenshire: I am grateful for the Minister’s response. She drew parallels with clause 65, which has a similar structure to this clause. I may come back to her on that, but I will leave it for the next set of amendments, when I will argue the point in reverse.
The Minister’s most relevant point was in relation to the phrase
“where harm may be caused to the public”.
I noted especially what she said in terms of how the power would be used in the first place. In clauses 822 and 823, the power would only be used in the first place, and therefore permission would be granted only if it was felt that harm was not being caused to the public. Although it would be entirely possible to use clause 825 without that context and without having regard to the initial reason from a technical, legal drafting point of view, I hear what the Minister says about the practical application. If reasons were not given, it would heighten the chances of a challenge being made.
In this age of trying to avoid unnecessary litigation, I can follow what the Minister said about how the provision would be operated in practice, even though I would argue that it would be more helpful to state it explicitly in the Bill. I note that the provisions relating to notification in writing will be addressed separately, and I take careful note of the Minister’s clarification and assurances. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 825 ordered to stand part of the Bill.

Clause 826 ordered to stand part of the Bill.

Clause 827

Name giving misleading indication of activities

James Brokenshire: I beg to move amendmentNo. 406, in clause 827, page 401, line 2, leave out sections (1) and (2) and insert—
‘(1) If in the opinion of the Secretary of State a person is carrying on business in The United Kingdom under a name that gives so misleading an indication of the nature of its activities as to be likely to cause harm to the public, the Secretary of State may direct the person carrying on such activites to change the name used by such a person in connection with such activities.
(2) The direction must be complied with within a period of six weeks from the date of the direction or such longer period as the Secretary of State may think fit to allow, unless an application is duly made to the court under the following provisions.
(3) The person in receipt of the direction may within the period of three weeks from the date of the direction, apply to the court to set the direction aside.
(4) The court may set the direction aside or confirm it.
(5) If the direction is confirmed, the court shall specify the period within which the direction is to be complied with.
(6) If a person fails to comply with a direction under this section an offence is committed.’.
We come to the point when I argue back to the Minister what she has argued back to me. Clause 827 covers similar ground to that of clause 76, in so far as it covers names likely to give a misleading impression of the activities of the company or, in this case, the business. However, clause 827 is not structured in the same way as clause 76 in that it simply makes it an offence for a business to carry on activities with a name that is so misleading that it is likely to cause harm to the public.
That is a very different approach from the company name equivalent, as the sanction must be triggered by a notice from the Secretary of State within a six-week period to enable the company to change its name. An offence is committed in that case only if the company does not change its name within the specified period. The company is also afforded a right of challenge to the court, which may set the direction aside or confirm it.
From the point of view of consistency, it seems odd that the regime under clause 827 is much more draconian, given that it appears to cover a very similar situation. I should be interested to hear why the Government believe that a business in that case is so fundamentally different from a company.
Amendment No. 406 would delete subsections (1) and (2) and replace them with provisions that are substantially the same as those in clause 76. That might mean that the power under clause 827 was used more effectively, as complaint would lie with the Secretary of State, who could make an order if he or she was of the opinion that a misleading impression had been created. However, in clause 827, complaint appears to lie with the police and the prosecuting authorities, which means that it would need to be shown beyond all reasonable doubt that the name was so misleading that it was likely to cause harm to the public.
My fear is that it may be much more difficult to demonstrate that that evidential burden had been met. The amendment would therefore adopt a more workable and consistent regime, reflecting that in clause 76 in part 5.

Vera Baird: I take the point about the burden of proof—or the standard of proof, as I suppose it is, really—which is sensible, but the hon. Gentleman is really probing why there is a difference between the regimes in clauses 76 and 827.
Under clause 76, we considered a company registered under a name that gives so misleading an indication of the activities of the business as to be likely to cause harm to the public, but of course there is greater risk of harm to the public from such a name being used in the course of business—that is what this clause deals with—than from it being a company’s registered name. That is why we have introduced what is perhaps, on the face of it, a more draconian provision.
A person trading under a name that is likely to cause harm to the public should be stopped as soon as practicable. That trading should be an offence in itself, but under the amendment the offence would be failure to comply with a direction to change the name.

Crispin Blunt: Will the clause apply to a political party?

Vera Baird: Are political parties companies? I do not think so.

Crispin Blunt: The clause says:
“A person must not carry on business in the United Kingdom under a name that gives”
a misleading impression. My view is that a rather large chunk of trade unionists might think that the Labour party is not carrying on as it should, these days. I merely use that as a light-hearted illustration of the point that a political party might be named in a way that is wholly misleading.

Vera Baird: The answer is that if the party were trading, the clause might apply to it, but political parties are basically not businesses, are they? We are talking about risk of harm to the public from a name being used in the course of business. That is not going to happen with a political party.

James Brokenshire: Just one further point on that: as I understand it, the regime that we debated under clause 76 provides the mechanism that I have sought to reflect in the amendment. I note that the Minister has, in essence, acknowledged that the regime in clause 827 is somewhat more draconian in effect. As she says, if the name is being used as a trading name, the matter needs to be dealt with more quickly.
On the interrelationship between clauses 76 and 827, it seems that a limited liability company trading under its own name might be caught under both provisions and might find that it is caught on one side but not on the other. That seems slightly strange.

Vera Baird: I do not follow that. I think the hon. Gentleman said that a company might be caught under both provisions, which is probably right, in which case it would have to endure, as it were, the two different regimes to rectify its position.
The real point is to be quick, which is perhaps a better way to describe the proposal than more draconian, although I concede that it is more draconian, because cases will go straight to prosecution. Under the regime that the hon. Gentleman described, the direction would have to be challenged within three weeks. The direction has to be complied with within six weeks, but if it is challenged that has to happen within three weeks. So, the direction is issued and three weeks may pass, on the last day of which the perpetrator of a scam can put in a notice.
Theoretically, if the court dealt with the matter straight away and confirmed the direction, there would be a further six weeks, which means a total of nine weeks, during which the scam could subsist. However, that is not what happens, because the three weeks’ notice is notice only to the court—heaven knows when the case would get to court to be either confirmed or rejected—so the time for which the company may subsist, using a name for a scam, is sizeable. That is the problem.

James Brokenshire: The point is that the test under clauses 76 and 827 must be whether harm is being caused to the public. Even under clause 76, therefore, harm will be caused to the public in both situations. That is the basis on which I question the need for a different regime under both. The test might be harder to prove under clause 827, but if the case is more urgent, which the Minister seems to be suggesting, there might be a need for greater flexibility and an ability to move more quickly, which might lie more with the Secretary of State.

Vera Baird: Self-evidently it would not, because there would be so much time in the process under the hon. Gentleman’s proposal. Bringing a prosecution of course increases the standard of proof from, one imagines, the balance of probability in the situation to beyond reasonable doubt. I do not know, however, because if, under the hon. Gentleman’s regime, the court was determining the question, “Is this, in effect, unlawful trading?”, it might feel that it had to adopt the higher standard of proof anyway.
The hon. Gentleman’s experience in the law will tell him that where proof of a crime is required to satisfy a civil claim, the civil court will adopt the higher standard of proof.
I do not want to digress too much, but that is a terrible mischief in domestic violence cases. One applies for an injunction that should be taken on the civil burden, but because, if there is violence, the case will be taken as a crime, there is a risk of the judge taking it upon himself to impose the higher standard of proof, making the case harder to prove. I wonder whether the same is true for the cases that we are discussing.
If the judge would find as he is required to find under our clause 827, as it were, such a finding would be likely to have to be proved to the same standard, as it would involve a criminal offence. The hon. Gentleman would not make such cases easier by having the lower standard of proof, but he would substantially extend the period over which a scam could subsist, in the way that I have described.
So, the greater, or more pernicious and immediate, mischief to the public that is represented by breaches of the clause, rather than that represented by breaches of clause 76, requires our approach, not that suggested by the hon. Gentleman. On that basis, I hope he is persuaded to withdraw the amendment.

James Brokenshire: I am grateful to the Minister for that response, although I am not entirely persuaded. I hear what she says about the burden of proof in the context of clause 76, but the structure and framing of that clause are clear, inasmuch as the criminal liability applies only if the order is not complied with within the given period. Therefore, carrying on the business name up to that point is not a criminal issue; only the failure to comply with the notice is criminal.
The situation is arguable. Under clause 76, it is
“in the opinion of the Secretary of State”
that harm is caused to the public. Although I hear what the Minister says, I do not accept that there is the same criminal standard.
I also hear what the Minister says about whether my amendment might make it harder to use the relevant power quickly in this context because of the specific periods involved and the court challenge, but clauses 76 and 827 address the same evils of harm being caused to the public. There should be consistency.
I fear that the involvement of the police and the prosecuting authorities, as well as the burden of proof needed in terms of harm caused to the public—not a reasoned opinion, but actual harm—might make it more difficult to enforce clause 827. I would not like to see the Secretary of State issuing an order requiring a company to change its name and being successful in that, but not succeeding in stopping it continuing to trade under its trading name, even though it had changed its company name, if those names were one and the same. In other words, if X Ltd. were trading as X, the provision should be able to bite in both circumstances. I seek to address that structural issue with my amendments.

Vera Baird: That is an interesting point for an anorak, which the hon. Gentleman and both I are. The question is not whether the provision sets out a criminal offence of using a name that is so misleading an indication of the nature of the activities that it is likely to cause harm; it does not matter that the clause does not make that a crime. The question for the court in considering what standard of proof to adopt is whether such activity is criminal behaviour. It almost certainly will be, because it will clearly have been done deliberately.
If criminal behaviour is involved, irrespective of whether it is not expressed as an offence in the Bill, I am afraid that the court will adopt the higher standard of proof. Similarly, domestic violence does not need to be expressed to be an offence in the application for an injunction—it just happens to be criminal.
By pushing the amendment forward, we would achieve only a lot of delay when we ought to have a quick, summary way to get rid of people who are deliberately causing harm to the public. I apologise for the long intervention.

James Brokenshire: I am grateful for the Minister’s helpful remarks. We probably differ in our interpretation of clause 76 and how it will apply in contrast with clause 827. I want to ensure that the power under clause 827 is used efficiently and effectively. I am concerned that, because of the different structure and the agencies that will be engaged in the process, it might be much more difficult to enforce clause 827, compared with clause 76. My view is still that the most appropriate means of addressing this problem is to adopt the same approach to similar clauses.
Although the Minister is not minded to accept the amendment at the moment, I ask her to consider it carefully. Given the nature of the amendments we are discussing, it would not be useful to press them to a vote, but there is something to be considered in terms of the structure.
On clause stand part, I shall raise another issue in relation to criminal liability that might provide even more context. However, in response to the Minister’s comments, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part ofthe Bill.

James Brokenshire: There are a few more aspects of clause 827 that I want to mention and which touch on wider points that do not lend themselves directly to straightforward amendment. I am grateful for the input of David Rose, an intellectual property partner at the law firm, SJ Berwin.
As debated on the previous amendment, the primary purpose of the clause is to protect the public from a business that misleads them, by its trading name, as to the services or goods it provides. For example, the clause would appear to prohibit an entity from carrying on business under the name “All Organic”.

Vera Baird: Given the origin of the support for this particular amendment, I wondered whether it could be considered a party political contribution under the terms of the Bill.

James Brokenshire: When the Minister hears the point, I think she will realise that that is not the case. We are trying to address a fairly serious issue of law and to gain some understanding of the ambit of the clause. As drafted, the clause would appear to prohibit an entity from carrying on business under the name “All Organic” in relation to food products that are not organic.
There is, however, a question as to whether the clause provides protection between businesses inter se. It is arguable that the clause may be understood as providing a statutory basis for the rule that companies may not use a name so similar to the name used by an existing business if that is likely to mislead the public into confusing the two concerns. If that argument is correct and if a court could ascribe such a meaning to the clause, the provision if enacted would effectively mean that passing off became a criminal offence. That would amount to a major reshaping of a third party’s liability for passing off, a tort that has traditionally required the putative claimant to prove that it owns goodwill in and to a distinctive trade name, logo, get-up or similar, and that a third party’s use of the same or a similar name would cause confusion between the two businesses among members of the public.
The clause also creates a strict liability offence, because it is irrelevant whether the business owner uses the name with the intention of giving a misleading indication as to the nature of the activities or not. Its application may therefore have unjust consequences, especially when a third party passes itself off as a competitor without knowledge of that competitor’s rights. In passing off, there is no requirement that the alleged wrongdoer knew of the earlier, common law rights.
The clause is also troubling on the question of how the test of misleading will be applied. In a passing off case, it is necessary to consider all the circumstances to assess whether there is liability. Classically, disclaimers that are sufficiently prominent can successfully deflect an allegation that a third party’s use causes confusion. The clause, however, speaks of a name that
“gives so misleading an indication”.
Is an offence therefore committed if the name itself is misleading even if, in all the circumstances, the context of its use means that the public would never be misled? Moreover, criminal liability already exists under the Trade Descriptions Act 1968 in relation to goods or services that are provided under a business name that misleads the public as to the nature of those goods or services. I should be grateful for any clarification that the Minister can provide.

Crispin Blunt: I want to pursue the point about political parties. I thought that there was an element of doubt in the Minister’s mind in the last debate as to whether the clause applies to political parties. I think that political parties are a business, though they are obviously not companies. There are senses in which they raise money and carry on activities, though their objective is to win votes. I have looked for a definition of business in the Bill and I cannot find one, so will the Minister make it clear on the record that the clause definitively cannot apply to political parties? I want a sense of how confident she is that the clause might not catch any of us.

Vera Baird: I do not know whether the Conservative party is a business, but I doubt whether the Labour party is. The clause requires there to be a business, so the answer is that if the hon. Gentleman thinks that his party is covered by it and that the cap fits, fine. He can worry himself to death if he thinks that “Conservative” is a misleading name.
The hon. Member for Hornchurch talked about a business with the name “All Organic” and the fact that food sold might not be organic. The question is whether that criminality applies to passing off. I think that that was the essence of the question. The answer is no, because the offence in clause 827 relates to
“the nature of the activities of the business”.
Passing off is pretending to be somebody else. So there is a distinction there.
Does that make me as clever as the chap fromSJ Berwin, or possibly someone else as clever as an individual from SJ Berwin? That is what we say to those arguments, although on the face of it they were impressive ones. Frankly, the purpose of the clause is just to stop the use of a business name
“that gives so misleading an indication of the nature of the activities of the business as to be likely to cause harm to the public.”
It is perfectly evident from the argument that the hon. Member for Hornchurch agrees that that should be stopped.

David Howarth: The hon. Gentleman asked a question and it might be helpful if the Minister could answer it. Is the clause intended to create a strict liability crime? I do not read it that way. I read the words “must not carry on” as importing some sort of mental element into the offence. That was a serious point.

Vera Baird: I might be corrected, but I suspect that we go back full circle to the person in default and the liability of the officer concerned. I think that that would be somebody who
“authorises or permits, participates in, or fails to take all reasonable steps to prevent”
the offence. However one might determine criminal intent, those elements would have to be present. That is how clause 827(3) works. So I invite the Committee to think that the clause should stand part of the Bill.

James Brokenshire: I am grateful for the legal guidance and clarification that the Minister has given about why it is felt that passing off is not caught by the wording in the clause. I think that the interpretation and clarification given has been helpful. Clearly there was some thought among legal circles that passing off could have been captured.
I think that strict liability is a separate issue. The Minister said that officers would need to satisfy the relevant tests that she set out succinctly. However, the clause is wide enough to cover not just companies. Clause 827(3) refers to offences
“committed by a body corporate”.
Obviously, a sole trader, partnership or some other organisation could be caught within the ambit of the clause, but fall outside the test applied to officers in default, which is explained clearly and set out in the Bill.
I do not want push the Minister unduly, but it might be helpful for the outside world and for when we come to rely on and interpret the clause, if she could give further clarification on the concept of strict liability, and the meaning of the clause in that regard. Further guidance would be extremely helpful.

Question put and agreed to.

Clause 827 ordered to stand part of the Bill.

Clauses 828 to 830 ordered to stand part of the Bill.

Clause 831

Disclosure requried: business documents etc.

James Brokenshire: I beg to move amendmentNo. 408, in clause 831, page 402, line 33, leave out ‘A person’ and insert ‘An individual or partnership’.

Eric Illsley: With this it will be convenient to discuss the following amendments: No. 409, in clause 831, page 403, line 3, leave out ‘A person’ and insert ‘An individual or partnership’.
No. 410, in clause 831, page 403, line 7, leave out subsections (3) and (4).
No. 411, in clause 833, page 403, line 33, leave out ‘A person’ and insert ‘An individual or partnership’.
No. 412, in clause 833, page 403, line 40, leave out subsections (2) and (3).
No. 413, in clause 834, page 404, line 9, leave out ‘who’ and insert ‘which’.
No. 414, in clause 834, page 404, line 14, leave out subsection (4).

James Brokenshire: I have a further point about interpretation and clarification. Clause 831 provides for certain disclosure requirements for a business conducted in the UK. Clause 829 states that chapter 2 of part 34
“applies to an individual or partnership carrying on business in the United Kingdom”,
yet clause 831 discusses
“a person carrying on business in the United Kingdom”,
and that language is reflected in subsequent clauses in the chapter. That risks confusion, as a legal person could encompass more than an individual. Indeed, it is arguable whether a partnership is a person at all. Amendment No. 408 therefore seeks clarity about precisely what clause 831 will cover in applying to an individual or partnership, given that that is what is stated in clause 829(1).
Clause 833 gives the Secretary of State powerto require by regulation that notices providing information under the clause be provided in a specified form. Given that clause 833 states that the notice must be displayed in a prominent position so as to be easily read, that appears to be over-regulation, unless the Minister feels that there are other evils or issues that are not addressed by the clause and need to be addressed by regulation. I look forward to her comments to see whether I can be persuaded to the contrary.
Amendments Nos. 412 and 414 reflect the same logic. Amendment No. 413 will make a small drafting point by replacing “who” with “which” in clause 834(2). That seems more correct to me, but I again look forward to the Minister’s reply.

Vera Baird: The Government are inclined to think that the hon. Gentleman is right across the board, and we ask him in all seriousness to withdraw his amendments while we consider them.

James Brokenshire: On the basis of quitting while I am ahead, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 831 ordered to stand part of the Bill.

Clauses 832 to 836 ordered to stand part of the Bill.

Clause 837

Interpretation

Question proposed, That the clause stand part ofthe Bill.

James Brokenshire: I rise to make a small technical point on clause 837, which deals with the interpretation used in part 34 of the Bill. Clause 837 states that a partnership means
“(a) a partnership within the Partnership Act 1890 (c. 39), or
“(b) a limited partnership registered under the Limited Partnerships Act 1907 (c. 24),
or a firm or entity of a similar character formed under the law of a country or territory outside the United Kingdom”.
I confess that I am no legal expert in that area, but why is there no reference to partnership legislation relating to Northern Ireland, as in clause 911(2)? The legislation appears to be relevant, given that clause 821 states that part 34 will apply to the United Kingdom as a whole. Northern Ireland is not outside the UK and therefore would not be captured by the saving words after the definition of “partnership”.
Will the Minister clarify whether it is intended that the references in clause 911(2) to various partnership statutes should be reflected in the clause? Is there some other reason why that legislation is not addressed in the definition of “partnership” in clause 837?

Vera Baird: The short answer is that the relevant 1890 and 1907 Acts predate Northern Ireland.

James Brokenshire: I am grateful for that clarification. However, clause 911(2) refers to certain statutes that appear to allow a partnership to be formed in certain circumstances. It lists the Limited Liability Partnerships Act (Northern Ireland) 2002, the Limited Partnerships Act 1907 as it formerly had effect in Northern Ireland, the Open-Ended Investment Companies Act (Northern Ireland) 2002 and the European Economic Interest Groupings Regulations (Northern Ireland) 1989. I seek clarity that, given that those statutes appear to cover bodies of a partnership nature, if bodies were incorporated or established under the legislation that is due to be repealed, the appropriate cross-reference would be captured in clause 837.

Vera Baird: I am told that clause 991(2)(b) proves the point. Does that help the hon. Gentleman? If not, I shall write to him.

James Brokenshire: This is a technical issue, and not a huge point. I just wish to ensure that we have properly addressed it and I would be extremely grateful if the Minister could explain it.

Question put and agreed to.

Clause 837 ordered to stand part of the Bill.

Clauses 838 to 845 ordered to stand part of the Bill.

Schedule 10 agreed to.

Clauses 847 to 849 ordered to stand part of the Bill.

Schedule 11 agreed to.

Clauses 850 to 856 ordered to stand part of the Bill.

Clause 857

Appointment of the Independent Supervisor

Margaret Hodge: I beg to move amendment No. 267, in clause 857, page 416, line 1, leave out subsection (3).

Eric Illsley: With this it will be convenient to discuss Government amendment No. 268.

Margaret Hodge: The Professional Oversight Board is an operating body of the Financial Reporting Council, and is currently responsible for exercising the Secretary of State’s functions delegated to it under the Companies Act 1989 on the regulation of auditors. The Government expects that the role of independent supervisor of the Comptroller and Auditor General will be carried out by the Professional Oversight Board. The board is accountable, and will report annually, to the Secretary of State and through him to Parliament on the exercise of all functions delegated to it under this part of the Bill.
The Government recognise that the accountability and transparency of all bodies that perform a public function is important, and the issue was debated at length in another place. However, it is also important that designation of a body under the Freedom of Information Act 2000 is made only after careful consideration and consultation. Section 5 of that Act imposes an explicit statutory obligation to consult a body to which an order under the section applies. Designating the Professional Oversight Board in the way proposed in the clause bypasses that important obligation and therefore makes the subsection technically ineffective.
The Government are building up evidence on the impact that freedom of information has had on the bodies that meet the existing criteria, particularly whether the costs and burdens of its application under section 5 of the 2000 Act to private bodies performing public functions are appropriate.
The Department for Constitutional Affairs is proposing to review which bodies might be suitable for section 5 designations under the FOI Act. The Financial Reporting Council, of which the Professional Oversight Board is a part, will be included in that review.
I feel strongly that the review is the appropriate context within which to consider the position of the Professional Oversight Board, with respect to inclusion within the provisions of the Freedom of Information Act. We would expect any designation order to be made after proper consultation with that body. It is for those reasons that we are seeking to reverse the amendments made in the other place.

Jonathan Djanogly: I have to say that we were surprised to see the Government bringing forth those proposed amendments. As the Minister said, the matter was debated at some length in the House of Lords. I must have heard at least half a dozen times today alone both Ministers saying that matters have been debated in the House of Lords and that we do not need to debate them further and yet the Government are doing exactly what they are saying that we should not be doing ourselves. That is an ironic state of affairs, to say the least.
Moving on to the clauses, it seems as if we are debating two clauses here. Amendment No.267 deals with clause 857, but amendment No.268 deals with clause 881. On clause 857, the explanatory notes say that “Subsections (1) and”—I think that the notes should say (2)—
“provide that the Secretary of State has to appoint a body to be the Independent Supervisor of Auditors General in respect of the exercise of statutory audit functions. Subsection (2)”—
I think that that should be subsection (3)—
“provides for the appointment of the Independent Supervisor to have the effect of making it subject to the obligations of the Freedom of Information Act 2000.”
I think that the notes are wrong.
“Subsections (4), (5) and (6) provide that a body may be appointed as Independent supervisor of an Auditor-General if it is a corporate body or unincorporated association that is willing to carry out the function, that has arrangements in place that will ensure that the supervision is carried out effectively, and if that will exercise such functions and requirements that may be laid down in the Secretary of State’s order appointing it. The appointed Independent Supervisor must perform its function on a UK-wide basis for all four Auditors General in accordance with clause 857”
If we look at clause 857(1):
“The Secretary of State must appoint a body (“the Independent Supervisor”) to discharge the function mentioned in section 858(1) (“the supervision function”).”
Then in clause 858(1), it says:
“The Independent Supervisor must supervise the performance by each Auditor General of his functions as a statutory auditor.”
As the Minister said, that was debated at some length in the Lords. However, Baroness Noakes, who is herself an experienced auditor, spoke extremely well on that. I am going to put to the Committee a small proportion of the key points that she made. She said:
“We believe that when a Minister delegates his functions to a body, whether a public sector body or not, it is right that the Freedom of Information Act, rights and responsibilities also follow. Put another way, it would be wrong if a Government Department could avoid the operation of the Act by choosing to delegate functions in a particular way, rather than carry them out directly. So as a matter of principle we think that the Act should apply to the cases such as the delegation of functions to the independent supervisor and the Public Oversight Board.
More substantively, we have a very real belief that the performance of audit firms, which will be a function of the Public Oversight Board, ought to be in the public domain. If we are to have confidence in the role of auditors underpinning the strength of our capital markets, it makes no sense at all to keep auditor performance behind the closed doors of the Public Oversight Board. As the noble Lord, Lord Sharman, and I explained”—
the amendments were also supported by the Liberal Democrat peers—
“in Grand Committee and at Report, audit committees of listed companies bear a big responsibility to oversee the appointment of auditors and their work. How can audit committees discharge that responsibility if important information is kept from them? How can they rationally carry out a tender for an audit if they cannot compare the relative performance of auditors as judged by a knowledgeable external body? These two amendments are in the public interest.”—[Official Report, House of Lords, 23 May 2006; Vol. 682, c. 768-69.]
Baroness Noakes was making some important points, which go to the heart of what delegation to a public sector body should mean.
The Government said that they would be building a body of evidence for section 5 designations. However, the matter has been comprehensively debated in the Lords. The Government have had plenty of notice about the provisions, and they have had plenty of time to consult the appropriate people—all the bodies that the Minister mentioned earlier. There has been plenty of time for a review, quite apart from the fact that the matter has been consulted on for eight years. If we take only the Lords stages, it has been going on since January. [Interruption.] If the Minister for Industry and the Regions wants to intervene and talk about Eccles cakes, she may do so, but I think that we should stick to the substantive points.
If the Government wanted to change the Bill in the right way, they would have left the Lords amendments in place—they contain the principles of the matter, which we believe are important and should be maintained—and undertake their consultations, going to all the people whom the Minister mentioned in her opening remarks. They would then come back on Report with a thought-through series of amendments, putting in place a regime that would be acceptable to all parties.
I think that the right hon. Lady can tell from the way I am talking that we do not have a closed mind. However, we are not willing to roll over and accept Government amendments to delete the clauses in their totality, so that we just start from nothing again. If we do that, all the work done in the Lords will have been for nothing and the pressure will have come off the Government to table amendments that would add to the Bill rather than detract from it.
On that basis, perhaps we should now move to the other clause.

Margaret Hodge: Don’t read it out word for word.

Jonathan Djanogly: I am not sure whether the Minister spoke to it, although she did say that there was a second clause.

Margaret Hodge: I note that the hon. Gentleman is attempting to delay the due process of the Committee’s business. That is his right, but we should all bear that in mind if there is any discussion about an extension of time. We need to use our time effectively and to serve the interests of the public properly.

Jonathan Djanogly: I give way to my hon. Friend the Member for Reigate (Mr. Blunt).

Crispin Blunt: Is my hon. Friend as astonished as I am by that unbelievable outburst from the Minister? I do not know how many clauses we have been through today, because I have not counted them, but he, like the Minister and I have served on a number of other Committees, and to suggest that we are not making very good progress with the Bill, given that by the time the consolidation clauses come out, this will be the largest piece of legislation ever to come before Parliament, is unworthy of her—particularly given the filibustering that has occurred because the Government have on two occasions so far been unable to produce a majority on the Committee.

Jonathan Djanogly: I thank my hon. Friend for putting the record straight. He is quite right. We have done a huge amount of business today, and the Government have no right to say that we are delaying matters, particularly in relation to two amendments that are Government wrecking amendments. That is the whole point. The Government are proposing wrecking amendments, so to say that we are somehow delaying the proceedings is out of the question.

Shailesh Vara: Does my hon. Friend agree that for a Government who sought to argue that trade unions were not political organisations, and wasted an enormous amount of time trying to do so, it is indeed rich that they should now blame the Opposition for wasting time?

Nick Palmer: On a point of order, Mr. Illsley. What has this got to do with the clause that we are discussing?

Eric Illsley: Very good point. Let us get back to the amendments.

Jonathan Djanogly: I agree. The interventions, which the Government prompted, have lowered the tone of a constructive day on which we have made a huge amount of progress.
By now, the Minister will appreciate my point, and on that note, I rest my case.

Crispin Blunt: I beg to move that the Committee do now adjourn.

Eric Illsley: Order. I do not think that the hon. Gentleman is in a position to move that motion. We are debating amendments Nos. 267 and 268.

Question put, That the amendment be made:—

The Committee divided: Ayes 12, Noes 8.

Question accordingly agreed to.

Clause 857, as amended, ordered to stand part ofthe Bill.
Further consideration adjourned.—[Steve McCabe.]

Adjourned accordingly at twenty-five minutes to Ten o’clock till Thursday 6 July at Ten o’clock.